Here is a great article by the KCM Blog about renting v. buying. You can link directly to the article here: http://www.kcmblog.com/2012/01/10/9947/
In Real Estate, Keeping Current Matters!
by The KCM Crew on January 10, 2012
There is too much misinformation being spread about today’s real estate market. Studies are being misinterpreted. Prominent names are being used to foster a point even if their quote is from years ago.
As an example, we want to look at a story published last week by The Fiscal Times titled The New American Dream: Rent, Don’t Buy. In the article, they claim:
“Call it the Big Selloff—America is headed toward a future in which fewer people own the spaces they call home… Those trends are just the beginning.”
We are not arguing that the homeownership rate is under downward pressure in this country. We are disputing some of the ‘evidence’ used in the article. Here are three points we want to refute:
The Homeownership Rate IS NOT in a Freefall
The article quotes a Morgan Stanley study from July 2011 which did make the argument that the homeownership rate was trending downward. Many others made the same point at that time. What the article failed to mention is that the homeownership rate unexpectedly increased in the third quarter of 2011! As DSNews reported in early November:
“After falling to a 13-year low during the second quarter, the homeownership rate posted a highly unexpected rise in the third quarter, according to a Census Bureau report.”
The jury is still out as to whether the homeownership rate will continue to fall or whether it has already bottomed out.
The Founders of Case-Shiller ARE NOT Saying Renting is Better
In the article mentioned above, they claim that the team that founded the prestigious Case-Shiller Pricing Index believes that buying makes little sense. The article explains that back in 2006 Robert Shiller presented a study based on data collected prior to 2005 showing that, over time, it made more sense to rent than buy. They use this information to conclude:
“Another skeptic is Yale economist Robert Shiller, co-creator of the Case-Shiller Home Price Index.”
They claim Shiller is a skeptic today based on what he said six years ago!
The major challenge we have with this is that Karl Case, the other founder of the Case Shiller Index, came out ten days ago saying that now is the time to buy. The New York Times in a story published on 12/30/2011 quotes Professor Case as saying:
“If you’re buying a house or apartment to live in and pay for over time, and can afford the payments, then it’s a terrific time to buy.”
Beracha and Johnson DID NOT Conclude That You Shouldn’t Buy
The Fiscal Times article went on to say:
“And in a paper this June in the journal Real Estate Economics, two researchers calculated that over the past 30 years, most often it would have been better to rent than buy.”
They were referring to the great study done by Beracha and Johnson titled Lessons from Over 30 Years of Buy versus Rent Decisions: Is the American Dream Always Wise? We are very familiar with this study as we posted on it back in May of last year. The paper does explain that over the last thirty years the financial benefits of buying vs. renting could be debated.
However, the conclusion of the paper left no room for argument. According to professors Beracha and Johnson, NOW IS THE TIME TO BUY!
“(F)undamental drivers now appear to be in place that favor homeownership over renting in the near term future…
“[This] might seem unwise to many given the recent crash in the real estate markets around the country. However, rent-to-price ratios now seem to be in place along with other fundamental drivers that favor ownership over renting.”
They conclude their research paper with this sentence:
“Conditions (historically low mortgage rates and relatively low rent-to-price ratios) now seem in place to favor future purchases.”
Dr. Johnson, Ph.D. — Florida International University (FIU) and Editor of the Journal of Housing Research, is now a guest blogger on this site and in November shared with us his current presentation on this issue. To download the presentation, go to http://realestate.fiu.edu/buyer-or-renter-nation.html.
We attempt to keep our readers current on this very rapidly evolving housing market with this blog, our tweets, our facebook posts and our subscription service. The letters K-C-M preface each offering. They actually stand for ‘keeping current matters’. We believe that helping our followers stay on top of the latest information available will help correct the housing market.