Geoff: Is it better to buy or
rent a home?
Buying has almost always been
favored over renting when it
comes to housing.
For generations, the prevailing
wisdom has been that renting is
wasting money.
But what about now, with a tough
real estate market characterized
by elevated listing prices and
interest rates?
David Leonhardt has long covered
this issue for the New York
Times.
He's the author of the book on
the economy called, ours was the
shining future: The story of the
American dream.
Thanks so much for being with
us.
Considering this daunting real
estate market, limited
inventory, interest rates for 30
year fixed somewhere between
6.5% and 7%, and a median U.S.
Home price of $420,000, what is
a prospective homebuyer to do?
Is renting these days a better
option?
>> For most people it is a
better option, that is if you
don't already own.
For people who don't yet own a
home and are trying to make a
decision about the economics of
renting, I think I understand
why people have so long been
down on renting.
There has even been some shame
associated with renting.
Think it is important to say,
for most people who are trying
to figure out whether to buy or
rent, renting is a smarter
option financially.
You will save money.
There's a reason so many
Americans rent.
It helps to get out the message
that people should buy rather
than rent, when in fact, many
people should rent.
Geoff: On the other hand, rents
are sky high right now.
The national median for a
one-bedroom apartment is roughly
$1500 amia -- a month.
In New York City, it was $4300 a
month.
Isn't that throwing away money
in the sense that you are not
building equity?
>> It's important to remember
all the ways you throw away
money by buying.
There is a very large fee, often
tens of thousands of dollars,
that goes to a real estate
agent.
That's throwing money away.
You are paying the bank huge
amounts of interest.
That is throwing away money,
giving it to a bank.
You have to do repairs when you
own a home, often repairs it
don't really add to the value of
the house, like if your roof is
leaking, you have to fix it, you
have no choice.
And finally, there's the
opportunity cost.
If you didn't use all that money
for a down payment, you could've
invested in the stock market or
invested in other ways.
So it is true that renting
involves throwing anyway, but so
does buying.
Geoff: Why are home prices so
high right now?
It strikes me that with high
interest rates, that should
suggest that demand would be
lower, and sellers within have
to cut the price of the home in
order to drive up demand, but
that's not happening.
>> The way you describe it is
exactly the way the market
should work.
But the housing market is
bizarre and psychology plays a
big role.
A lot of people say I'm not
willing to accept less than a
certain price for their home.
Maybe they think about the price
they bought it for and they add
on the cost of all the repairs
and renovations they have done.
People Sam just not willing to
accept less than 350 thousand
dollars, or 850 thousand
dollars, or whatever, for their
house.
So when they don't get the
offers that they want, they pull
their house off the market and
think, I will put it back on
later.
So housing ends up having an
artificial quality in which
prices don't fall until there is
reduced demand.
If you are a would homebuyer,
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 home.
Not forever, but in the short or
medium term, renting makes a lot
of sense for a lot of people.
In the northeast, on the west
coast, and major markets like
Atlanta and Dallas and places
like that.
Geoff: The worst of all worlds
is a good way to describe it,
especially for first-time
millennial homebuyers.
Data shows 20% of men between
25-34 live with their parents, a
number that has ticked up since
the 1980's.
What are some of the cultural
costs of this country's housing
crisis?
>> It is difficult for people to
get launched into their lives.
I think multigenerational
households are fine, even good
in some cases.
Throughout history,
multigenerational households
allow families to spend more
time together.
If younger people want to leave
their house and they can't, that
is a problem, because you want
people to do what they want to
do.
What we have seen is that we
have a large amount of
generational inequality in our
country.
I understand that older people
may have their own frustrations,
but older people have had a lot
of benefits of the American
economy.
They got to buy in the housing
market when it was cheaper.
Got to buy into the stock market
went as much cheaper than it has
been over the last decades.
And it has been much harder for
young people to get themselves
established.
High home prices are another
example of generational
inequality.
They serve to aggravate
generational inequality.
Geoff: Thanks so much for your
insights.
>> Thanks for having me.
♪♪