Recently US News published an interestingly one sided article entitled “Rent, Don’t Buy, Your Home”. The article made the case that buying a home in today’s market made no sense and equated to “renting, from a bank”.
The most blatantly biased point raised in the whole article was one attributed to Fidelity – the big investment firm. According to them renting can actually be a “good investment”. Renting an investment? Fidelity says that “…if renters save even $300 a month—the difference, say, between their rent and a monthly mortgage payment—that money, invested in stocks growing at only 4 percent, could add up to $114,000 in 20 years.”
I’m surprised that this globally recognized investment firm did not illuminate the whole truth of the matter. Sure you can rent long term, as Fidelity suggests, but you need to know what that will truly cost you. For example, a $1,300 per month rent payment adjusted annually at 3% inflation will cost you $290,154 by year 15. Remember, Fidelity proposes you pay rent and invest $300 per month at 4%. So let’s go ahead and save $300 and invest that at 4% for just 15 years. Now you’ve spent $223,298 in rent and, because inflation grew at an average of 4% your $300 a month investment has returned 1% after inflation. I wonder how much in commissions Fidelity made over the course of the 15 years? Remember – they want you to rent for 20 years.
I’m not sure why Fidelity doesn’t just advocate purchasing a house that cost $300 less per month than the maximum of what one can afford and using that $300 to invest. Here’s another example of the hilarity of Fidelity’s advice. $1,500 in rent paid monthly over 15 years and adjusted upward for inflation at 3% annually will make your landlord one happy individual because you would have forked over $314,272 – in 15 years. The average mortgage term is 30 years.
Other facts the proponents of rent ignore are the plain realities of high inventories (which translate into more buyer choice), low home prices and low interest rates. When would be a better time to buy? Of course when it comes to stocks Fidelity will be the first to tell you – “Buy low – sell high.” If there is anyone waiting for a bottom then they will most likely miss out on these lower prices.
Real estate is not a national market. Although Florida is suffering from a glut of inventory and flat sales North Carolina is not. When you take it to the local level the differences become even more pronounced.
Buying still makes sense if you plan on staying in your home for 5 years or more.
The most blatantly biased point raised in the whole article was one attributed to Fidelity – the big investment firm. According to them renting can actually be a “good investment”. Renting an investment? Fidelity says that “…if renters save even $300 a month—the difference, say, between their rent and a monthly mortgage payment—that money, invested in stocks growing at only 4 percent, could add up to $114,000 in 20 years.”
I’m surprised that this globally recognized investment firm did not illuminate the whole truth of the matter. Sure you can rent long term, as Fidelity suggests, but you need to know what that will truly cost you. For example, a $1,300 per month rent payment adjusted annually at 3% inflation will cost you $290,154 by year 15. Remember, Fidelity proposes you pay rent and invest $300 per month at 4%. So let’s go ahead and save $300 and invest that at 4% for just 15 years. Now you’ve spent $223,298 in rent and, because inflation grew at an average of 4% your $300 a month investment has returned 1% after inflation. I wonder how much in commissions Fidelity made over the course of the 15 years? Remember – they want you to rent for 20 years.
I’m not sure why Fidelity doesn’t just advocate purchasing a house that cost $300 less per month than the maximum of what one can afford and using that $300 to invest. Here’s another example of the hilarity of Fidelity’s advice. $1,500 in rent paid monthly over 15 years and adjusted upward for inflation at 3% annually will make your landlord one happy individual because you would have forked over $314,272 – in 15 years. The average mortgage term is 30 years.
Other facts the proponents of rent ignore are the plain realities of high inventories (which translate into more buyer choice), low home prices and low interest rates. When would be a better time to buy? Of course when it comes to stocks Fidelity will be the first to tell you – “Buy low – sell high.” If there is anyone waiting for a bottom then they will most likely miss out on these lower prices.
Real estate is not a national market. Although Florida is suffering from a glut of inventory and flat sales North Carolina is not. When you take it to the local level the differences become even more pronounced.
Buying still makes sense if you plan on staying in your home for 5 years or more.
