Why renting over buying might be the favored choice in today's real estate landscape

Geoff: Is it better to buy or rent a house? Buying has almost always been

favored

over

renting

when it comes to housing. For generations, the prevailing opinion has been that

renting

is a waste of money. But what happens now, with a difficult

real

estate

market characterized by high listing prices and interest rates? David Leonhardt has long covered this topic for the New York Times. He is the author of the book on economics called Our Bright Future Era: The Story of the American Dream. Thank you very much for being with us. Given this discouraging housing market, limited inventory, 30-year interest rates pegged at 6.5% to 7%, and a median U.S. home price of $420,000, what's a potential buyer to do? home buyer?

Is renting

today

a better option? For most people it's a better option, that is, if you don't already own it. For people who don't own a home yet and are trying to make a decision about the economics of renting, I think I understand why people haven't rented for so long. There has even been some shame associated with renting. I think it's important to say that for most people who are trying to decide whether to buy or rent, renting is a financially smarter option. You will save money. There's a reason so many Americans rent. It helps spread the message that people should buy instead of rent, when in

real

ity many people should rent.

Geoff: On the other hand, rents are through the roof at the moment. The national average for a one-bedroom apartment is approximately $1,500 per person, per month. In New York City, it was $4,300 a month. Isn't that wasting money in the sense that capital is not being generated? It's important to remember all the ways you waste money shopping. There is a very large fee, often tens of thousands of dollars, that goes to a real

estate

agent. That's wasting money. You are paying the bank huge amounts of interest. That's throwing money away and giving it to a bank. You have to make repairs when you own a house, often the repairs don't really increase the value of the house, like if your roof is leaking you have to fix it, you have no

choice

.

And finally, there is the opportunity cost. If I hadn't used all that money for the down payment, I could have invested in the stock market or other ways. So it is true that renting implies throwing away anyway, but also

buying

. Geoff: Why are house prices so high right now? It seems to me that with high interest rates, that should suggest that demand would be lower and that domestic sellers would have to reduce home prices to increase demand, but that is not happening. The way you describe it is exactly the way the market should work. But the real estate market is strange and psychology plays a big role.

Many people say that I am not willing to accept less than a certain price for their house. Maybe they think about the price they bought it for and add up the cost of all the repairs and renovations they've done. People, Sam, just aren't willing to take less than $350,000, or $850,000, or whatever, for your house. So when they don't get the offers they want, they take their house off the market and think, I'll put it back on later. So housing ends up having an artificial quality where prices don't fall until demand reduces. If you are a prospective home buyer, you have the worst of both worlds.

Interest rates are low, but prices have not fallen. So you really have to pay a huge amount to buy a house. Not forever, but in the short or medium term, renting makes a lot of sense for many people. In the Northeast, on the West Coast and in major markets like Atlanta and Dallas and places like that. Geoff: Worst of all worlds is a good way to describe it, especially for millennials who are first-time homebuyers. Data shows that 20% of men between the ages of 25 and 34 live with their parents, a figure that has increased since the 1980s. What are some of the cultural costs of this country's housing crisis?

It's hard for people to throw themselves into their lives. I think multi-generational homes are fine, even good in some cases. Throughout history, multigenerational homes have allowed families to spend more time together. If young people want to leave home and they can't, that's a problem, because you want people to do what they want to do. What we have seen is that we have great generational inequality in our country. I understand that seniors may have their own frustrations, but seniors have reaped many benefits from the American economy. They came to buy in the real estate market when it was cheaper.

Buying on the stock market was much cheaper than in recent decades. And it has been much more difficult for young people to establish themselves. High housing prices are another example of generational inequality. They serve to aggravate generational inequality. Geoff: Thank you very much for your ideas. Thanks for inviting me. ♪♪