Is renting a home the new American dream?
Home ownership is down in the recession, and renting is up. For many people, it simply makes sense.
This story was originally covered by PRI's Here and Now. For more, listen to the audio above.
Owning a home, possibly with a white picket fence, is often thought of as part of the American Dream. Investors push homeownership as a safe investment, a way to finance important events like their children's college education and something to pass on to the next generation. Administrations and lawmakers have pushed homeownership as a matter of public policy.
Renting, on the other hand, tends to get a bad wrap. David Leonhardt of the New York Times told PRI's Here and Now, "I think a lot of people out there have been made to feel bad about renting." This is in spite of the fact that renting, for many people, just makes sense.
That may be changing, though. Already this year, there are double the number of rentals in cities across the country than there were in all of last year.
Homeownership can provide psychological and economic benefits, Leonhardt admits. Some say that owning a home makes people feel more a part of the community. And homes can be great investments, in the right situation. "It's not that there aren't benefits to owning a home," according to Leonhardt. "The question is how much are those benefits worth?"
For people looking to calculate that worth, Leonhardt encourages people to look into the rent ratio: Take the purchase price of a place you would buy, and divide it by the annual (not monthly) rent you would likely pay. If the ratio is 20 or above, it's likely best to rent. If it is below 15, it might be a good idea to think about buying. In between is an open question.
Overall, however, "people make housing decisions based too much on the money," according to Leonhardt. A home is more than an investment, it's also a place to live. "People have a huge incentive to make people buy," Leonhardt points out. But the decision on whether to rent or buy should be based on more than just making money. And people have to make the decision for themselves.
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