Buying a house still beats paying rent
By Gordon Powers, Sympatico / MSN Finance
There’s been lots of message board talk about whether you should buy or rent a house, particularly now that interest rates have tumbled so much.
To many people, the psychological benefits of buying are almost impossible to overcome. Confusing the pride and price of ownership — economists call this the control premium — is a very real phenomenon that drives a lot of people to pester their real estate agent. Plus, owning a property gives you the secure sense that, if nothing else, you have a solid asset to fall back on when things get messy — as they have over the past 18 months.
Of course, all this depends on when you buy, and how long you own. Buy at the wrong time — like during the kind of stampede that overtook much of the U.S. recently — and you could well end up wishing you had rented instead.
Despite this, most Canadians who own their homes can expect to grow wealthier over time than renters, says UBC prof Tsur Somerville. Only in a couple of moderate-growth cities like Ottawa or Winnipeg do renters even have a chance of accumulating as much wealth as owners, he suggests.
Last year, Somerville looked at nine Canadian cities and compared the costs of owning and renting. His conclusion? Be a buyer.
The big plus for ownership, he says, is that the constraint of mortgage payments effectively forces homebuyers to save by building equity through their repayments. And tax-free profits only sweeten the pot.
Not everybody agrees on this one, of course. Here’s an interesting pro-renting analysis from the Get Rich Slowly blog — written, ironically, just weeks before the U.S. housing bubble finally burst — suggesting that the equation just isn't that simple.
So, knowing what you know now, are you a buyer or a renter?