Renting vs Purchasing a Home the Decision essay

Download this essay in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from essay:

Renting vs. Purchasing a Home

The decision to rent a home, rather than buy one, is complex but comes down in favor of renting. In addition to a credit shortage, buyers are skittish about investing their money in what seems to be a losing proposition. After all these factors are considered, the thriving rental market is no surprise.

The decision to rent a home, rather than buy one, is complex but comes down in favor of renting. After the housing bust, homes are much less expensive than they used to be, but credit for purchasing a home is harder to find. In addition to a credit shortage, buyers are skittish about investing their money in what seems to be a losing proposition. Baby Boomers, who do have more assets than their grandchildren in Gen Y, are no longer interested in the upkeep associated with large homes. Gen Y, entering the job market, is more interested in the location flexibility allowed by rentals. After all these factors are considered, the thriving rental market is no surprise.

In Europe, where rates of home ownership are much lower than in the U.S., "houses have use value, not exchange value" (Sugrue, 2009), and are not viewed as investment vehicles. In the U.S., "between 1995 & #8230; and 2005, the homeownership percentage in the United States moved from 64% & #8230; to 69%; in addition, home prices doubled & #8230;" (Wallison, 2008). However, "since the peak in 2006, home values nationally are down 29.5%," says Zillow in Home Prices Fall Again In Biggest Drop Since 2008 (Alden, 2011). As a result, "28.4% of all single-family homes with mortgages are now "underwater," or worth less than the mortgage owed (Alden, 2011). Though future homeowners still see homes as investments, 1 in 3 current homeowners have come out badly on their investment.

In the housing boom days, applicants could get mortgages with little to no documentation beyond the assessed value of the house and a credit report. However, since the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), was passed, credit scores, down payments, employment history and repayment records have all become required for mortgage loan applications, because "creditor(s) & #8230; [require] verified and documented information concerning the consumer's financial situation & #8230; before extending the loan" (Sabel, 2010). It was widely concluded that the foreclosure rates in the U.S. are the result of "mortgages that far exceed home values and bargain-basement rents" (Whitehouse, 2009). For those existing homeowners who do default, "10 states & #8230; largely prevent mortgage lenders from going after the other assets ..." (Whitehouse, 2009), which provides some incentives for default, even though a default stays on credit reports for seven years. As a result, banks have taken the Dodd-Frank Act to heart, and now it's "easier for an apartment builder to get a construction loan than it is for the average American to get a mortgage" (Lewis, 2011). All of this makes buying a home less of viable proposition.

There are many reasons to rent. Even in the same neighborhood, renters pay less, and do not have to worry about paying property taxes, homeowners' insurance, or maintenance and repairs (Whitehouse, 2009). It is tough to justify the several thousands of dollars it takes to purchase a home, plus the down payment, knowing that "the value of the house may actually fall" (La Monica, 2010). Another reason to avoid buying a house is worrying about short sales. Those who cannot sell their existing home (Wallison, 2008), cannot buy a new home, and so end up renting anyway. The unemployed (a steady 10% of the workforce over the last 3 years (Bureau of Census, 2011)) end up with bad credit from homeownership -- either from foreclosure, or from being sued for walking out on a mortgage, and end up seeking rentals as well. These are all good reasons to rent rather than buy.

Baby boomers will eventually end up as renters, too. Eventually, "retiring Baby Boomers & #8230; downgrade from bigger houses to apartments" (La Monica, 2010). It makes financial sense, because according to the AARP, for the bottom half of the income brackets, "owners [age 50+] with mortgages face higher levels of housing cost burdens than renters," (AARP Public Policy Institute, 2011) though that does not mean that they are free and clear. Nearly one-third of older renters use at least 50% of their income for housing (AARP Public Policy Institute, 2011). Though the percentage of older renters has stayed steady over the last decade, an additional 4% owe a mortgage, usually on a fixed income (AARP Public Policy Institute, 2011). Renters tend to be disabled more often than mortgage-holders (AARP Public Policy Institute, 2011). Given these issues, it makes sense that even though the housing market is poor, baby boomers are still looking to sell their homes, often for money for retirement (Chiang, 2011). Overall, baby boomers will, in the end, be renters.

Gen Y faces a different set of issues. The millennial generation understands that their investments need to be thrifty, because Social Security and pensions are not part of their retirement plans for a long-lived life (Aronowitz, 2011). Naturally, purchasing a house is not seen as a smart investment, and so "… the gigantic Millennial generation & #8230;[is]… a big reason for the rental demand" (Lewis, 2011). Gen Y actually makes up the majority of the rental market in many areas (Jacobson, 2011). Of course, because they are in their 20s and at the beginning of their careers, Gen Y cannot usually afford a down payment and purchase fees (Lewis, 2011), making rent a more attractive option, even with first and last months' rent and a damage deposit required. At the start of their careers, Gen Y is more likely to move in search of a job, and renting's flexibility appeals to them (Lewis, 2011). In addition, many Gen Yers do not like to waste time commuting, and would rather be urbanites than suburbanites, even to the detriment of square footage (Hoak, 2011). Other priorities than space, like Wi-Fi, stainless steel appliances, and living spaces as fashion statements, lends themselves to stylishly located apartments (Jacobson, 2011). Part of knowing about fashion is being a well-informed shopper for housing, which contributes to their decision to rent rather than buy (Jacobson, 2011). As a result, this huge segment of the population is heavily biased in favor of renting.

One reason that renting is obviously a better option than buying is a home is that so many people have found this to be the right choice. In nearly every housing market, the rental prices have gone up, indicating strong demand (Lowery, 2011). The exceptions are areas where there a concentrated number of foreclosures or extremely high unemployment (Herron, 2011). Upward pressure on the rental market is driving up rental prices -- 22% in the last decade (ElBoghdady, 2011). Families that lived in a home that was foreclosed upon generally look for a house to rent rather than an apartment, says Gentry in For rent: Foreclosed owners welcome (Kennedy Melia, 2011), which also drives up the average rental price, as apartments rent for less than a house.

Despite the inclination to think of home ownership as an investment, a sizable portion of existing homeowners have found that they are actually losing money on their mortgages, and that there are fewer reasons to keep paying on a mortgage for a house that's worth less than what is owed. People who would be like homeowners have found that mortgages are very difficult to get due to credit restrictions. Many good financial reasons exist to rent rather than to buy a home, especially with the current high unemployment rate. As they age on fixed incomes and become disabled, baby boomers will increasingly become renters. The millennials have no interest in home ownership, and see it as a difficulty rather than a reason for pride. All of these factors contribute to the huge increase in the rental market and the associated rise in the price of rental housing.

Works Cited

AARP Public Policy Institute. (2011, October). Housing for Older Adults: The Impacts of the Recession. INSIGHT On the Issue, p. 1.

Alden, W. (2011, May 9). Home Prices Fall Again In Biggest Drop Since 2008. Retrieved October 27, 2011, from HUFFPOST Business:

Aronowitz, N.W. (2011, June 17). Generation Rent: How Our American Dream Is Different from Our Parents'. Retrieved October 27, 2011, from Good:

Bureau of Census. (2011, October 7). Labor Force Statistics from the Current Population Survey. Retrieved October 27, 2011, from Bureau of Labor Statistics:

Chiang, L. (2011, October 13). Economy Delays Boomers' Plans to Sell Homes. (CNBC) Retrieved October 27, 2011, from

ElBoghdady, D. (2011, April 25). Affordable rental housing scarce in U.S., study finds. Retrieved October 27, 2011, from Washington Post:

Herron, J. (2011, April 13). Rental market swings back in favor of landlords. Retrieved October 27, 2011, from The Associated Press on…[continue]

Cite This Essay:

"Renting Vs Purchasing A Home The Decision" (2011, October 29) Retrieved October 22, 2016, from

"Renting Vs Purchasing A Home The Decision" 29 October 2011. Web.22 October. 2016. <>

"Renting Vs Purchasing A Home The Decision", 29 October 2011, Accessed.22 October. 2016,

Other Documents Pertaining To This Topic

  • Rent vs Buy Because of Many Factors

    Rent vs. Buy Because of many factors and costs to consider, the decision to rent vs. buy continues to plague the minds of many. A strategy for one person may not be a prudent strategy for another. Hence, the answer is rather relative as oppose to an absolute or universal decision. The real estate market is one of a cyclical nature, with periods of ebbs and flows. However, the key is

  • Rent Versus Own

    Rent vs. Own Housing serves as a shelter for all the people and their family, satisfying their main physical need and holding the equipment people need for their daily routines. Although the necessity of having a housing unit is clear, owning a house has become fashionable and is looked upon nowadays as a long-run investment decision which provides stable and rather good return. In this scope, the tenure choice, or the

  • Renting Apartment an Option Buying a House

    Renting apartment an option buying a house. I opinion sway readers buying a home renting apartment. Cite work pages 1000 words . Renting vs. buying The events which have marked the real estate market throughout the past recent years have generated among the strongest impacts ever. In this order of ideas, the internationalized financial crisis commenced within the United States real estate sector soon spread out through all global regions. At the

  • Rent V Own Qualifying the Buyer

    Rent V Own Qualifying the Buyer -- How to determine whether one should Own or Rent There's an old saying in real estate sales, that an agent must "qualify the buyer." What this means is that before an agent decides to work with a prospective home buyer, the agent must ask certain questions about the buyer's financial status, employment history, wants and needs, before the agent sends the buyer listings or takes

  • Leasing Assets vs Buying The Question of

    leasing assets vs. buying. The question of whether to buy an asset or to lease an asset is quite complex. Indeed, the answer is not always a black and white, straight response. Often, there is a grey area when researching whether to purchase or lease. For instance, if one wishes to purchase a house and live within the residence for two years, the residence can then be rented out and

  • Difficult Economic Timers Buying a House Is

    difficult economic timers, buying a house is a risky decision. Purchasing a home, particularly for the first time, has always been so, but uncertain financial periods -- the downturn followed by a possible upturn -- make it all the harder. Few prospective buyers are aware of the excruciating decisions that devolve around the purchase, nor are they aware of the economic minutiae involved. Investing background economic principles may make

  • Financial Derivatives on Sub Prime Crisis

    The article that was written by Conley (2011) discusses the impact that collateralized debt obligations (CDO's) would have upon the subprime loans. These were created in 1987, by the Wall Street firm Drexel Burnham. In this product, the investment bankers would take a number of different articles and combine them together as one investment. The various assets that were used included: junk bonds, mortgages and other high yielding investments from

Read Full Essay
Copyright 2016 . All Rights Reserved