Wednesday, September 15, 2010

Is Nothing Sacred? Renting Better than Buying

In the majority of the surveyed years [1978 through 2009], renting [one's home] turns out to be the better choice financially,

-from an article by Ken H. Johnson, an FIU economics professor, in Sunday's Herald.

But only if one prudently reinvests the savings.

This is not to say that renters became wealthier than home owners. Home ownership is, after all, a forced savings plan. You are putting money into a house. Although renters save money by paying less in rent than they would on a mortgage, those savings will often be spent in a "cloud of consumption" -- on consumer goods rather than on a financial instrument that brings a return.

The universe rewards discipline. Long-term versus short term. Hanging in there versus bailing out. Etc. Provided that you have a relatively free, market-based economy. These virtues don't work in Venezuela, for example. Or they take a lot longer, maybe a lifetime or two, to work out.

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