Released October 20, 2009

RALEIGH, N.C. --It wasn't so long ago that everyone recommended buying a home. Renting was said to be just throwing money down the drain. Now with the drop in the housing market the last two years, attitudes have changed. Can we now say that renting trumps owning?

Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, I wouldn't go that far, but I think what's happened in the last two years has exposed the differences between renting and owning.

If you rent a place, it's what economists call pure consumption. You're renting that space. You don't have any investment stake in that space. Yes, you're paying money, but you're using the space. So I wouldn't say that it's money down the drain.

If you're buying a home, you're doing two things. You're consuming, you're using that space, but it's also an investment. You worry about whether the value is going to go up. And of course, five, six, seven years ago, everyone thought housing prices would just continue to go up forever. And so they looked on owning as a great thing, because you got the space to live in plus it was a fantastic investment.

In the last two years, it's been a different story. On average, housing prices have gone down. I think for the average person, what most economists would argue, if you're going to be in a spot a short period of time - say, less than five years - it probably means you should rent. But if you're going to be in a spot for a long period of time, probably owning makes more sense, just because it gives you more control. But don't think that owning is necessarily going to be the most stable investment. We will probably see housing prices go up maybe two percent a year from here on out, not the 12 percent a year that they were going up a couple of years ago."

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http://www.ncsu.edu/project/calscommblogs/news/archives/2009/10/economic_perspe_472.html