Moshe Milevsky thinks that many homeowners should have rented. In his book, Your Money Milestones, he makes many good points to support his conclusion. However, there is a compromise choice that may be better than either typical home ownership or renting.
One of Milevsky’s arguments comes down to a correlation between wage risk and the investment risk in owning a house. If a big local employer leaves town, people lose their jobs and at the same time see the value of their houses drop.
Another of Milevsky’s arguments is that houses represent too high a percentage of the typical homeowner’s net worth. Having all your money tied up in one house is similar to having your entire portfolio tied up in one stock.
Milevsky does discuss some of the benefits of home ownership. There can be social benefits to having stable neighbours who help each other. To this I would add the benefit of not having to interact with a landlord.
I don’t see this as a binary choice. A compromise that would help many people would be to own a smaller, less costly house. I see too many people who say that they need a bigger house, but their current house is full of junk they don’t use. Amassed stuff is clogging up their lives.
I’m not talking about the extreme cases of clutter dealt with in some television programs. I’m talking about the majority of people who make the parts of their house that others see fairly presentable, but have almost all storage space and maybe a room or two jammed up with useless junk. When baby comes, it may be a better idea to throw away junk instead of buying a bigger house.
If people limited their mortgage payments to say 20% of their income instead of the currently accepted limit of about 30%, they would look much better against Milevsky’s criticisms.
For those whose income is modest compared to the cost of houses in their chosen neighbourhoods, buying a less expensive house might not be an option. For these people, Milevsky makes a strong case for renting. When buying a less expensive house in an option, aspiring homeowners would do well to consider this option seriously.