Economist: "Overall there is now a very compelling rationale to renting rather than buying in most of the global economy"

The Financial Times had a special 12 page section this weekend about renting - the case for renting vs. buying, a story on a guy who owns a luxury-rental firm in NYC, and a great write-up on a group of 22-year-olds who have amassed like $20 million in rental properties (and yes, will be bankrupt soon)

Here's highlights of the article on renting vs. buying. Yes, renting historically was not the way to go, and yes, it used to be throwing money away. But not anymore. My, how things have changed.

Plus, renters know what their payment will be next month, period. Owners have no idea how much farther their home will depreciate next month (or the next one, or the next one)...

To buy or to rent?

Overall," concludes Mark Zandi, chief economist at Moody's Economy.com, the consultancy, "there is now a very compelling rationale to renting rather than buying in most of the global economy, particularly as interest rates rise. This was not the case a decade ago."

The shift in the buying-versus-renting balance was highlighted in a recent report on the US housing market by HSBC, the bank. The research showed that even removing capital repayments from mortgages (which is possible through increasingly common interest-only loans) and taking into account government tax deductions designed to boost home-ownership, new buyers are paying a substantial premium over renters in many areas.

In San Francisco or Honolulu, for example, annual ownership costs are 68 and 73 per cent greater than rental costs.

Although the advantages of ownership eventually reassert themselves, as rents rise and inflation eats away at mortgage debt, today's buyers need to see higher-than-average price growth and to hold their properties for a significant amount of time to make it financially worthwhile.

In Los Angeles, for example, an owner would need to stay in his or her house for 11 years, assuming prices remain steady, before the costs equalled those of renting.

Yoji Otani, real estate analyst at Credit Suisse, says the same is true in Tokyo, where the average house price is down about 8 per cent since 2000. "An investment in a flat is worth practically nothing in Japan - it is the value of the land that is important and, although land prices are just starting to recover, it's too early to say that they will appreciate as a whole over the next ten years," he says. "The low interest rate environment [does] makes mortgages attractive . . . but renting is better because there is virtually no secondary housing market in Japan [due to] an oversupply of new condominiums."