Throwing Money Away (Buying vs Renting)

I've always been an opponent of the "throwing money away" argument. In fact, the argument played right into the housing bubble. There was a sense of urgency that you HAD to buy a house now or else.<p>Renting provides you near elasticity in where you want to live. Besides your lease (which could be month-to-month) you have nothing binding you to an area. You also don't face the risk of a declining asset. While housing typically increases in value, we've certainly seen the opposite happening a lot lately. When you're young, you probably don't want to be tied down to an area. Things change quickly at this stage in your life.<p>Ironically, a lot of these people who were afraid they were "throwing money away" while renting got into situations where they literally were throwing money away to PMI and too large of interest rates.<p>If renting was such a god-awful idea, it wouldn't exist. There are tons of reasons to rent instead of buy and anyone who insists that home ownership is the only way is foolish.

Encouraging buying instead of lending discourages a flexible labor market. Basically the government, with the mortgage tax break, is lining the pockets of developers and home builders, and making it difficult or expensive for families to move where there is a higher paying job or even better school district.

The NYT has a good rent vs. buy calculator:<p><a href="http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html" rel="nofollow">http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAP...</a>

<p><pre><code> 3. Leverage. Buying a house is the only way normal people can invest a huge amount of money on margin. </code></pre> That's a reason against it, not in favour.<p>Would you borrow 300k so as to invest in a fixed term bond on residential real estate with hefty exit penalties?<p>The cult of home ownership puts a respectable shine on brazen gambling practices. :)

It's really not that complicated, maybe if I write it in code people will understand:<p><pre><code> if( {current value of house}*{interest rate} + {taxes} + {insurance} + {maintenance} &#60; {rent} ) return 'buy'; else return 'rent'; </code></pre> _Ignore_ any change in the prices of houses! It has no bearing on the decision.

I think his arguments are quite reasonable, but his example is a poor one. A Manhattan apartment is a fairly atypical sort of real estate investment, imho. I live in Austin TX, where real estate has managed to weather the storm much better than average over the last couple of years, and I'm much better off having bought than rented, even though I bought my condo in 06, at the height of the housing bubble.<p>That's also an atypical example, I know, and so I wouldn't want to generalize from my case alone.

I don't think the situation is so black and white. I have always preferred this approach above everything else:<p><a href="http://www.thesimpledollar.com/2007/02/27/renting-versus-buying-are-there-situations-where-renting-clearly-wins/" rel="nofollow">http://www.thesimpledollar.com/2007/02/27/renting-versus-buy...</a>

One huge plus of buying vs renting, is that when you buy you can get a home equity line for emergencies. A huge line of credit at very low interest rate, that doesn't expire, or change due to future events.

At least no renter is upside down on their mortgage right now.