Real Estate Economy Watch has a good article about CoreLogics report on housing. CoreLogic is reporting that Renters are now spending 5% more on their housing than homeowners do.
What struck me about this report is that it reminds me of the pre-boom mentality on real estate. I got into this business in 1993, pre-boom market. My first months in the business everyone was so excited because rates on a 30 year mortgage had just dropped to 9.5%. Back then, the benefits of owning your home was that you “locked in” your housing payment to an asset that has historically paced inflation. The mindset on real estate was one of a long-term safe investment.
During the bubble that mindset shifted to easy financing and tapping every bit of equity you had and buying real estate for a quick return. We are experiencing where that mindset lead us.
Here is an early indication of what I think will shift the mindset back to owning vs. renting.
Renters now spend five percent more of their household budgets on housing costs than do homeowners, and the difference is growing as rents rise.
Since 2005, homeowners’ expenditures for housing have risen from 31.9 percent of their household budget to 33.2 percent, but renters’ costs have risen even more from 35.6 percent to 38.4 percent, according to the October CoreLogic U.S. Housing and Mortgage Trends.
Since 1985, homeowners have increased their housing expenditure allocation by 12 percent, while renters increased by 22 percent.
I have a friend that told me his “Accountant” says he is much better off Renting than he is Owning because renting is cheaper than owning. I told him to fire his Accountant because in a few years you will be paying a lot more in rent for your same place. Just recently he called me up all surprised because his rent went up. Keep in mind I am speaking generally, there are cases where it makes much more sense to rent vs own and only you can determine what is right for you.
Real Estate is still my preferred investment, as I approach it from a long-term investment perspective. It dawned on me recently that many people have forgotten why real estate is a sound long-term investment. Take some time to run your scenario on this Rent vs Own Calculator and see if renting or owning makes more financial sense for you.
- Are You Throwing Away Money By Renting? (money.usnews.com)
- Rising rents lessen the affordability of housing (usatoday.com)