Videos | January 6, 2012

Should I rent or buy?

The decision of whether to rent a home or buy one is influenced by lifestyle as well as finances. Do you want the flexibility of renting or the stability of buying a home?

Renting: no strings attached
Aside from financial limitations people can face when considering buying a home, there are sound reasons why renting can be a good idea. One reason is flexibility. Knowing it is possible to pick up and move house quickly if circumstances change can be comforting. In fact, economists make a strong case for a link between the ties of homeownership and unemployment.
In addition, renting might be wise for those just moved to a new town. It gives time for the new arrival to become familiar with the local housing market, including transport links, desired locations and market prices.
Renting might allow extra money to be channeled into different types of investing.

Buying: a long-term commitment
Buying a home is a long-term commitment. It might suit people who want stability, are settled in a certain location and seek more in control of decisions about their house. Buying can be seen as an investment for the future - but it should be remembered that as with all investments, there is a risk of losing money investing in a home. ING Group chief economist Mark Cliffe detailed a boom and bust in house prices in the United States in his video Lesson 2 from the financial crisis.
Homeowners also face maintenance and insurance costs renters tend to avoid.

Compare the cost of renting with the cost of buying
The financial arguments around the rent versus buy debate are extensive. One measure used to determine if property is "fair value" is to compare the ratio of house prices to rents, explained in the eZonomics video Are houses expensive or cheap?. Likewise, The Economist magazine carried out such calculations and found suggestions houses were relatively expensive to buy compared to the cost of renting in several countries, including Australia, France, the Netherlands and China. But, as with so much about property, it is likely localised circumstances will come into play.

A home is not a pension fund
Homeowners should be wary of thinking of a home as an important part of funding their retirement plan. A property's value can fluctuate - and there is a chance it might ultimately be sold at a loss. Whether your buy or rent, it's still a good idea to save for your retirement nest egg separately.

FamilyHouse buyingHouse pricesMortgageRenting

eZonomics team
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