I have blogged numerous times about “rent vs. buy” comparisons, illuminating the many reasons buying beats renting.
But – there is now one reason to buy that looms so powerfully over all the others – that all the others are almost irrelevant.
And don’t get me wrong, as the other reasons remain very powerful – and they include the following:
- Buying fixes your housing payment. We’ve seen rental rates double in many markets over the last six years, and we’ll see them shoot up again with the inevitable inflation we’ll see again.
- Owning allows you to build equity with your housing payment.
- Owning allows you to benefit from appreciation.
- Owning allows you to do whatever you want to your home. In a survey several years ago, this reason ranked among the top reasons homeowners said they were happy they bought. It was not the financial reasons. It was the emotional, and all too many financial analysts discount this factor.
I also often share this “Rent vs. Buy Calculator” from Freddie Mac – which pretty much always proves buyers will be better off in 5 to 7 years, no matter how conservative the assumptions are.
But This Is the Biggie That Reigns Over All the Others: $39 Trillion in Federal Debt.
Renowned analysts like Luke Gromen and Lyn Alden remind us constantly that there is no way in hell we’ll ever pay off that much debt.
They further point out that it is growing out of control and that the inevitable solution will be to monetize the debt via money printing and/or “financial repression.”
After WWII, our federal debt was close to today’s levels relative to the size of our economy (close to 120% of GDP).
We paid it off in two ways: (1) by growing the economy; and (2) by effectively printing money and pushing inflation rates as high as 20% in the years following WWII.
It worked, as our debt levels fell to as low as 24% of GDP by the 1970s (when politicians said… ”Hey, wait a minute, if we borrow a lot of money, I can buy more votes…”).
In any case, our illustrious government will have to print money again to pay off debt – and we’ll see inflation rates spike again.
And housing, as a hard asset, will appreciate with that inflation – just like we saw over the last five years.
Hence, potential buyers should strongly consider buying a home for two reasons: (1) Homes are an excellent and necessary inflation hedge; and (2) it will be that much harder to buy a home in a post-inflation/post-debt-monetization world that will just push prices up that much more.
