This is based on comparing the monthly cost of renting versus the monthly cost of a typical mortgage. The shift has been dramatic, because rents have gone down in real terms (relative to the value of the dollar), while home prices and interest rates have both risen much faster than inflation. This is a key reason why demand to buy a home is low right now. We can see from the multi-family permit charts in Cromford® Public that developers have created a huge number of new apartments to cope with the rental demand along with an increasing number of build-to-rent single-family homes and condos. This massive additional supply has stopped rents rising.
But this is not the complete story. There are many benefits and costs associated with owning a home that are not taken into account by that analysis of the basic monthly expenses. These can completely swamp the monthly cost numbers, but building them into a model is often tricky and requires forecasts of the future value of a home, which is fraught with uncertainty at any time. If you rent, the landlord is the one who benefits from any appreciation in the asset but is also responsible for much of the costs of ownership, such as property tax, maintenance, HOA dues, building insurance, etc. For the past 80 years, real-estate has appreciated in value, except for a few temporary isolated periods. There are always some pundits calling for a massive fall in prices, but 95% of the time they are proven wrong. By renting, you are forgoing any chance of sharing in the benefits of appreciation, or indeed the costs of ownership.
This could be interpreted as making renting more attractive than buying. The Economist, Wall Street Journal and New York Times have recently come out with articles concluding exactly that.
In an analysis of household wealth, we find the most significant component of net worth is usually the equity that household has built up in either the home they live in or the homes they invested in to rent out as landlords, or both. You rarely find households with significant net worth living in rented accommodation, unless they intend to move somewhere else within the next couple of years. A telling statistic is that the net worth of the average homeowner is 44 times that of the average tenant.
The advantage of owning over renting is smaller now than it was a few years ago, but unless you plan to stay in a property less than 4 years, it is usually financially beneficial to buy if you possibly can. Just make sure you can afford the repayments before you jump, because buying a home and losing it to foreclosure is definitely unhealthy for your finances.
