I finally got around to posting some of the reader feedback that has been sent to Priced Out Forever. Thanks for your emails. I am cheered by the thankful ones, learning from the constructive ones, and amused by the angry ones.

Keep them coming!

Maybe I’m going overboard on this whole renting vs. purchasing thing, but here’s yet another article that hopefully will help drive the point home: Renting Makes More Financial Sense Than Homeownership

I HAVE SOMETHING un-American to confess: I rent an apartment, despite having enough money to buy a house. I plan to keep renting for as long as I can. I’m not just holding out for better prices. Renting will make me richer.

I normally write about stocks for SmartMoney.com, but the boss asked me to explain to readers my reason for renting. Here goes: Businesses are great investments while houses are poor ones, so I’d rather rent the latter and own the former.

Shares of businesses return 7% a year over long time periods. I’m subtracting for inflation…

The average real return for houses over long time periods might surprise you. It’s zero.
…
“You say houses return zero. But I’ve made a fortune on my house in recent years.”

I’m referring to inflation-adjusted returns over long time periods, absent external boosts to demand. You’re referring to gross returns over a short time period that combined lax borrowing standards and ultra-low interest rates.

Remember, I’m not saying “don’t ever buy a house.” I’m saying “don’t ever buy a house as a means to generate a profit.” I’m nowhere near as hard core as this guy, in that I would probably have already bought a house by now if prices were sane. But as long as things are this far out of whack, the financial benefits of renting far outweigh the psychological benefits of purchasing (for me).

Speaking of Buying vs. Renting, none other than the New York Times agrees that now is not a “good time to buy.”

By the Realtors’ way of thinking, it’s always a good time to buy. Homeownership, they argue, is a way to achieve the American dream, save on taxes and earn a solid investment return all at the same time.

That’s how it has worked out for much of the last 15 years. But in a stark reversal, it’s now clear that people who chose renting over buying in the last two years made the right move. In much of the country, including large parts of the Northeast, California, Florida and the Southwest, recent home buyers have faced higher monthly costs than renters and have lost money on their investment in the meantime. It’s almost as if they have thrown money away, an insult once reserved for renters.

Most striking, perhaps, is the fact that prices may not yet have fallen far enough for buying to look better than renting today, except for people who plan to stay in a home for many years.

3… 2… 1… Duh.

What’s interesting to me is that their interactive Rent vs. Buy tool returns results very similar to my spreadsheet, although it is actually slightly more generous toward renting.

Hat tip: Calculated Risk

New content has been posted to the “More…” section: Renting Vs. Purchasing: Buy If You Must. Why Must You Buy? by Eleua and yours truly (The Tim).

One additional comment I would make about the analysis is that I’m not trying to say that no one should ever purchase a home. I’m just saying that home ownership should be sought after for the stable roof over one’s head rather than for some sort of financial gain. Even in a balanced market, ownership is not going to be a money-making venture. As Eleua puts it, you should look at buying a home “as your nest, rather than your nest egg.”

Don’t miss this excellent piece from the Wall Street Journal: Why your home isn’t the investment you think it is.

Your home means a lot of things to you, most of them good. Your home gives comfort and protection to you and your family, and it could well embody all your material hopes and dreams.

But houses have become much more than just places to live. Your home is probably your biggest asset, and the price you could ask for it today is almost certainly much higher than what you paid for it back whenever.

As a result, houses have become substitute credit cards, as profligate owners borrow their equity to finance everything from cars to vacations. Among thriftier owners, the equity they have built up in the family home has become a vital part of retirement planning — a “fourth leg” of the now-unstable “company pension/personal savings/Social Security” stool that was long the model for a financially secure old age.

Unfortunately for both groups, however, houses are not very good investments. For the grasshoppers, there’s nothing quite as stupid as paying off your 2002 trip to Orlando in 2032, when you finally settle up your refinanced “cash out” 30-year mortgage. And for the ants, economic studies have demonstrated over and over that houses (1) cost more than most people make when they sell and (2) rarely match the long-term returns of stocks or other investments.

Summary: Buy a home to live in. Invest your money somewhere else.

On the eve of the spring real estate selling season comes a new resource for potential home buyers: Priced Out Forever. Here on the blog you’ll find the latest news about home price trends, lending, and just about anything related to the concept of being priced out forever.

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