Renting vs. buying: Two quick stories to begin
1. Probably in about early 2011, I was playing in a periodic Friday night poker game in Queens, NYC. Most of the time the conversation was pretty low-key: sports, beer, women, people's weeks, etc. One particular night, somehow it turned to renting vs. buying. NYC is a different animal than most American cities in terms of this choice, because buying is often incredibly expensive for not a lot of space, but still, this poker game went there. It became a huge fight. There were probably six dudes and it was split 3/3 on "ALWAYS RENT!" vs. "ALWAYS BUY!" At the time, I was in the "rent" category, but that was nine years ago and I've since evolved. Anyway, we had to end that game early. It was awkward.
2. Just yesterday, I went and looked at about 3-4 houses in the Fort Worth area. All of them had pros and cons, and I'd argue all four were overpriced for what you'd get. We have talked about this a little bit before: in general right now, a DFW house is moving in 22 to 28 days. It was probably a little stupid to even look, because I doubt I'm within 28 days of putting my signature on anything. But why are houses seemingly more expensive in a pandemic and economic downturn? Well, sadly that answer is easy: supply/demand and inventory. The DFW median for mid-May to mid-June was $307,000, which is actually a 2% increase over the same period last year.
This all brings us to a core question, tho: when comparing renting vs. buying, would one theoretically make you happier?
First on renting vs. buying: Some cost calculations and differences
Let's say you got a house right at the median -- $307,000.
If you put 20% down, you'd need $61,400.
If you went 3.5%, you'd need $10.745.
So, you would need some amount within that range to put down, generally speaking. And we know the picture around employment and student loans isn't always great right now.
Above all, then, not everyone is currently in a position to buy -- and that's fine.
But if you had a binary choice of renting vs. buying -- you could theoretically do either -- which might make you happier, per research?
Renting vs. buying and happiness
I actually started down this rabbit hole by reading Paul Millerd's newsletter (good if you like to think about how work could be better), where he quotes 2009 research from Grace Wong at Wharton. That research basically says:
"Homeowners are not any happier than renters."
The measures included:
- Life satisfaction
- Overall mood
- General moment-to-moment emotions (sometimes called "affect")
- Overall feeling
The important caveat here is that it's a tough study to design, and if you buy a house for $307,000 and eventually sell it for $450,000, you just netted some money which might become education, vacations, another house to work on, etc. That can drive happiness as well. Grace's study notes that "it controls for housing quality and household income," both of which can vary widely. So overall it's not perfect. But it does put one in the renting column, overall.
Another study, from around 2013, said somewhat similar: it's better to spend money on experiences than forego those experiences to save for an expensive home, per se.
Well, if you're looking for one conclusively in the "own a home" column, we got you -- although again with caveats. This is tied to a Bank of America study in 2019, but remember Bank of America has a vested interest in people needing mortgages. Their survey ended up claiming that homeowners are happier and renters regret not buying.
CNBC in 2019 also struck a blow for "rent instead of own," claiming that the hassles that come with house maintenance could sap into your overall happiness.
Money, money, money on renting vs. buying: back in 2002, a national realtors association showed that owners tend to have a median net worth 30x higher than renters.
Renting vs. buying: It's honestly all a very individual decision
It's based on where you're at in life, what moves you're trying to make, and what you want from the next 5-10 years and beyond. There are obviously also lots of consideration around your financial situation and the bigger macro picture, i.e. interest rates (currently low, but likely to rise in the next 2-3 years relative to overall political climate).
The research on renting vs. buying is split largely because the decision is so emotional and individual and, frankly, financial. It's going to vary, and neither is necessarily "better" -- despite what some generations may tell you. (And heck, a lot of those older generations who loved the idea of buying are now renting en masse themselves!)