Common wisdom is that buying a residence is always better than renting one. Many would tell you that renting when you can buy is like throwing money away. However, this advice may be turned upside down in the current housing market. As the country comes out of the pandemic, buyers may need to be more cautious. There is at least an argument to be made that renting may be a better option for the time being.
It is very hard to get a sense of the true value in the housing market. Prices have shot up dramatically, and they are predicted to be up 8% more in 2021. There is almost no supply to be had. In the meantime, buyers are chasing the few properties that are available on the market. The clear imbalance of supply and demand is distorting prices. When it comes to an appraisal, practically anything goes.
Nobody Knows What May Happen to the Housing Market
There are plenty of upcoming changes to the housing market. That is commonly wisdom. However, nobody really knows what this dislocation will involve. There is at least some movement towards buyers avoiding some of the most expensive housing markets. Telework may be here to stay, and there may be less reason for people to pay the sky-high prices of markets such as New York and San Francisco. This trend may apply to all major cities as people will not have to commute to work every day as they did before the pandemic. On the other hand, there may be winners and losers between cities in the housing market. So much is undetermined, and 2021's distorted housing market may not hold the true answers.
In addition, the current ratio of prices to own and rent has taken some of the shine away from homeownership. Home prices are going up far faster than rents. When you add closing and other transaction costs to the price of homes, this may be one of the few times when it makes sense to rent.
The high housing prices may mean that you end up sinking most or all of your assets into a home. Your portfolio will have little diversity as it may be almost all real estate. Then, you have a disproportionate part of your funds tied up in an asset that has already seen price hikes. People just need to think back 15 years to see what could happen to overheated home prices. At some point, homebuilders may actually act to fill the supply gap, and it could take some helium out of home prices.
Renting Gives You Flexibility in an Uncertain Time
Renting may allow buyers some time to figure out what is happening in the housing market before they make such a large commitment. They can figuratively cool their heels while the direction of the housing market is set. People will not need to stress about chasing the few properties they can buy while they learn more about their own personal financial and work situations. In other words, it buys them time while still keeping a roof over their head.
Buying a home right now obviously ties you down at a time when the economy and your own personal situation may be in flux. You need to remain in a home for five years to recoup the transactions costs and make buying worth it. The only thing that many people can agree on is that things are about to change dramatically.
Renting gives you the ability to live anywhere. Your job may even allow you to work from anywhere in the future, and it may be less important to put down firm routes. Not buying a home can keep you from making a large commitment for which you might not be prepared. Right now, it is hard to place a dollar value on flexibility, but that is what is needed as the country reopens. Flexibility means opportunity, and there may be more of that now than at any time since the 1990s boom.
Of course, many still believe that building equity in a home is the best thing. If you plan on remaining in the same place for a long time, and you have enough assets where you are not "house poor," owing a home may still make sense for you. However, it is not the no-brainer now that it was in the past.
