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

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1. 0:02Geoff: Is it better to buy or
2. 0:05rent a home?
3. 0:05Buying has almost always been
4. 0:06favored over renting when it
5. 0:07comes to housing.
6. 0:09For generations, the prevailing
7. 0:10wisdom has been that renting is
8. 0:11wasting money.
9. 0:14But what about now, with a tough
10. 0:17real estate market characterized
11. 0:18by elevated listing prices and
12. 0:19interest rates?
13. 0:20David Leonhardt has long covered
14. 0:22this issue for the New York
15. 0:23Times.
16. 0:23He's the author of the book on
17. 0:25the economy called, ours was the
18. 0:28shining future: The story of the
19. 0:28American dream.
20. 0:33Thanks so much for being with
21. 0:36us.
22. 0:36Considering this daunting real
23. 0:38estate market, limited
24. 0:41inventory, interest rates for 30
25. 0:42year fixed somewhere between
26. 0:446.5% and 7%, and a median U.S.
27. 0:48Home price of $420,000, what is
28. 0:50a prospective homebuyer to do?
29. 0:53Is renting these days a better
30. 0:53option?
31. 0:54>> For most people it is a
32. 0:57better option, that is if you
33. 0:58don't already own.
34. 1:02For people who don't yet own a
35. 1:04home and are trying to make a
36. 1:05decision about the economics of
37. 1:07renting, I think I understand
38. 1:10why people have so long been
39. 1:14down on renting.
40. 1:14There has even been some shame
41. 1:18associated with renting.
42. 1:18Think it is important to say,
43. 1:20for most people who are trying
44. 1:21to figure out whether to buy or
45. 1:23rent, renting is a smarter
46. 1:24option financially.
47. 1:25You will save money.
48. 1:27There's a reason so many
49. 1:32Americans rent.
50. 1:37It helps to get out the message
51. 1:38that people should buy rather
52. 1:40than rent, when in fact, many
53. 1:42people should rent.
54. 1:42Geoff: On the other hand, rents
55. 1:47are sky high right now.
56. 1:49The national median for a
57. 1:50one-bedroom apartment is roughly
58. 1:51$1500 amia -- a month.
59. 1:54In New York City, it was $4300 a
60. 1:55month.
61. 1:56Isn't that throwing away money
62. 1:59in the sense that you are not
63. 2:00building equity?
64. 2:01>> It's important to remember
65. 2:05all the ways you throw away
66. 2:06money by buying.
67. 2:08There is a very large fee, often
68. 2:10tens of thousands of dollars,
69. 2:12that goes to a real estate
70. 2:13agent.
71. 2:15That's throwing money away.
72. 2:16You are paying the bank huge
73. 2:19amounts of interest.
74. 2:21That is throwing away money,
75. 2:24giving it to a bank.
76. 2:25You have to do repairs when you
77. 2:27own a home, often repairs it
78. 2:28don't really add to the value of
79. 2:31the house, like if your roof is
80. 2:33leaking, you have to fix it, you
81. 2:34have no choice.
82. 2:37And finally, there's the
83. 2:40opportunity cost.
84. 2:41If you didn't use all that money
85. 2:43for a down payment, you could've
86. 2:45invested in the stock market or
87. 2:47invested in other ways.
88. 2:48So it is true that renting
89. 2:50involves throwing anyway, but so
90. 2:52does buying.
91. 2:52Geoff: Why are home prices so
92. 2:56high right now?
93. 2:58It strikes me that with high
94. 2:59interest rates, that should
95. 3:01suggest that demand would be
96. 3:02lower, and sellers within have
97. 3:04to cut the price of the home in
98. 3:05order to drive up demand, but
99. 3:07that's not happening.
100. 3:07>> The way you describe it is
101. 3:11exactly the way the market
102. 3:12should work.
103. 3:13But the housing market is
104. 3:17bizarre and psychology plays a
105. 3:17big role.
106. 3:19A lot of people say I'm not
107. 3:22willing to accept less than a
108. 3:23certain price for their home.
109. 3:25Maybe they think about the price
110. 3:27they bought it for and they add
111. 3:28on the cost of all the repairs
112. 3:30and renovations they have done.
113. 3:36People Sam just not willing to
114. 3:38accept less than 350 thousand
115. 3:41dollars, or 850 thousand
116. 3:42dollars, or whatever, for their
117. 3:43house.
118. 3:45So when they don't get the
119. 3:46offers that they want, they pull
120. 3:50their house off the market and
121. 3:51think, I will put it back on
122. 3:52later.
123. 3:55So housing ends up having an
124. 3:56artificial quality in which
125. 3:59prices don't fall until there is
126. 4:03reduced demand.
127. 4:03If you are a would homebuyer,
128. 4:06you have the worst of both
129. 4:06worlds.
130. 4:10Interest rates are low, but
131. 4:12prices have not fallen.
132. 4:13So you really have to pay a huge
133. 4:15amount to buy a home.
134. 4:18Not forever, but in the short or
135. 4:20medium term, renting makes a lot
136. 4:21of sense for a lot of people.
137. 4:24In the northeast, on the west
138. 4:26coast, and major markets like
139. 4:27Atlanta and Dallas and places
140. 4:28like that.
141. 4:29Geoff: The worst of all worlds
142. 4:33is a good way to describe it,
143. 4:36especially for first-time
144. 4:37millennial homebuyers.
145. 4:38Data shows 20% of men between
146. 4:4325-34 live with their parents, a
147. 4:45number that has ticked up since
148. 4:48the 1980's.
149. 4:48What are some of the cultural
150. 4:50costs of this country's housing
151. 4:51crisis?
152. 4:52>> It is difficult for people to
153. 4:55get launched into their lives.
154. 4:57I think multigenerational
155. 5:00households are fine, even good
156. 5:02in some cases.
157. 5:02Throughout history,
158. 5:06multigenerational households
159. 5:08allow families to spend more
160. 5:09time together.
161. 5:10If younger people want to leave
162. 5:12their house and they can't, that
163. 5:14is a problem, because you want
164. 5:16people to do what they want to
165. 5:17do.
166. 5:18What we have seen is that we
167. 5:19have a large amount of
168. 5:21generational inequality in our
169. 5:25country.
170. 5:25I understand that older people
171. 5:27may have their own frustrations,
172. 5:28but older people have had a lot
173. 5:31of benefits of the American
174. 5:32economy.
175. 5:33They got to buy in the housing
176. 5:35market when it was cheaper.
177. 5:37Got to buy into the stock market
178. 5:39went as much cheaper than it has
179. 5:41been over the last decades.
180. 5:43And it has been much harder for
181. 5:45young people to get themselves
182. 5:47established.
183. 5:47High home prices are another
184. 5:49example of generational
185. 5:51inequality.
186. 5:56They serve to aggravate
187. 5:57generational inequality.
188. 5:58Geoff: Thanks so much for your
189. 6:01insights.
190. 6:02>> Thanks for having me.
191. 6:06♪♪