Renting vs Buying – Which is the better financial decision?

The New York Times Your Money column had a timely article on renting versus buying by Tara Siegel Bernard. She interviewed a couple who are renting, by choice, in southern California due to high home prices in the area. She also interviewed a few financial professionals in the article. In summary, they agreed on the following:

1) In the short-term, no one can predict what the real estate market will do on a consistent basis. Therefore, if you are planning to live somewhere for just a few years and have no interest in being a landlord, it is better to rent.

2) If you plan to live in a place for 5+ years, buying may be the better investment, but it depends on the assumptions (time horizon, tax bracket, risk tolerance, etc).

3) While the research supports that buying a home isn’t necessarily always a good investment, it disregards the non-financial benefits of owning (such as stability) and it assumes that you are disciplined with your money in terms of saving and investing.

4) When left to our own devices, many of us don’t save as much as we can afford. If you are one of those people, a forced savings plan, like a mortgage payment, can be a good thing.

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