Own or Rent — Controlling the Chaos

We have owned a home for over thirty years (my wife would successfully argue as to who the property manager is); it is both a source of pride and value. None-the-less, from a meager down payment in the late 1970s we have significantly leveraged that payment into a comfortable home and not unreasonable sum of equity – I said equity not cash – ah . . . there is the rub.

The Wall Street Journal notes this week that Fannie Mae (now there is a reliable source) says that the percentage of people who consider a house a safe investment has declined from 83% in 2003 to 67% this past July. My guess it corresponds to number of foreclosures, unemployed, and speculated homes – but that is just my guess.

To own or rent is a debate that will never end. In the mid-1940s articles were written in Harper’s Magazine and others saying that home ownership would be a disaster to your personal finances and implied that the buyer didn’t know what they were getting into. Other types of housing were offered as the solution: rentals, apartments, mutual associations, and the like. At the time there seemed to be a fear of homeownership – fifteen years of almost no ownership construction will do that. This obviously passed as all irrational fears do. Americans built and bought millions of homes since then.

The current debate is more economic than challenging the fulfillment of a dream. In America there has been a cultural, economic, and social desire to plant your flag on a chunk of ground and call it your own. It is a visceral desire – in fact many of the current sad stories are a direct result of this yearning. In other times and different economics, this longing would not have caused the chaos of today. Many competing and opposing forces came to bear to create this disaster.

But markets try to balance themselves. When inexperienced or even experienced homeowners are sadly forced out, other opportunities appear. The foreclosed house now becomes a rental, and large suburban tracts are changed to horizontal rental complexes, street after street meeting the need of the marketplace. Good or bad, I am not sure, only time will tell. But what is critical is the residential structure is preserved and can be adjusted to reflect later market forces, from owner to rental and back to owner.

Rental and ownership are perceived differently across the country. New York City, where almost everyone rents (or more cultural appropriate leases) a residential unit; extreme allowances made and tolerance giving to rent control, obituary diving, and under the table rentals. But there is no stigma to the renter – all are in the same boat. But that is an entirely different market than the suburban foreclosed homeowner who is forced into a rental property. Iowans would not understand.

The Census Bureau notes in an August release that renters pay a higher percentage of their income for housing than do owners – go figure. In most cases the age and the structure of the family has something to do with it. As these families mature, incomes and stability increase, homeownership follows – it is the long term that is often thought of by the homebuyer. The renter tends to be transient, mobile, socially and culturally looser – age changes these actions. Rents try to reflect the current marketplace, ownership costs do not – they are often fixed at the time of purchase and incomes increase reducing the relative percentage. Today’s foreclosures do tell a different story for some, but the trend will always go back to the mean – consider your own home and situation if you bought prior to 2000.

To rent or own will always have its champions and rationalizations will be made that prove, without a doubt, their position is correct. As I noted above the desire to own is visceral – the reason for renting may be cerebral. Rationalize away . . . .

Stay tuned . . . . .