Considering The Rental Option In A Crappy Housing Market

I hate to be the bearer of bad tidings, but the housing market still sucks.  Yesterday a widely followed index stated that housing prices in 20 major U.S. cities declined for the fourth month in a row.  Prices also declined from last year’s prices, which were inflated by a government tax credit program that has since expired.  Even more depressing, in nine of the 20 cities the housing price index hit a new bottom.

The bursting of the housing bubble was one of the things that pushed the American economy into recession, and housing looks like it might keep the economy mired in recession a bit longer.  The lack of a quick rebound in the housing market is frightening for American homeowners.  Most of us have a lot of our net worth tied up in our houses, and if the market continues to decline it is going to have a long-term impact on our lifestyles and, eventually, our retirements.  Even in our New Albany neighborhood we’ve seen a nearby house with a foreclosure sign in the front window, and the housing market clearly is soft.  Many of the homes that have been on the market for months haven’t even gotten showings, much less offers or sales.

I’ve mentioned to Richard and Russell that they might want to focus on renting rather than home ownership, at least in the short term.  Especially in today’s economy, you need flexibility to follow job opportunities.  Renting permits that, home ownership really doesn’t.  Renters have landlords who (theoretically, at least) take care of problems, keep up the grounds, and screen your neighbors.  To be sure, renters don’t build up equity in property — but in this economy, even homeowners aren’t doing that.  Renters also avoid tying up a good chunk of money in an asset that may not appreciate in value.

For young people, renting rather than moving directly into home ownership makes a lot of sense.  It may not be “the American dream,” but it is a prudent response to what may well be an unfortunate long-term economic reality.

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