Tuesday, August 21, 2012

Renting everything

This story in BusinesssWeek had me scratching my head a bit.  More and more college graduates are opting to rent rather than buy--homes, cars, and even clothes.  The article seemed to think it was a cultural shift.

Some of it makes perfect sense to me--if you lost your job (like one person in the article) you may feel skittish about committing to a mortgage--after all, how do you know your current job won't evaporate? How do you know you won't have to move? How do you know you won't have to sell your place, possibly at a loss?

So it makes sense--I think the push to buy homes (instead of giving people the opportunity and access to good-paying jobs) got us into this mess.  Buying a home is a great thing, but in order to do it, salaries have to be good and the actual home prices have to be reasonable. Yet instead of creating those conditions, we opted for the smoke-and-mirrors approach. What we did last decade was push interest rates lower and lower which, in my neck of the woods at least, seemed to push housing prices higher and higher.  After all, the rates were low! Your monthly payment was low! And then things like 40-year (!) mortgages came out which didn't help much at all.  Look, your payment is lower! So what if you'll be in debt until your eighties?

And everyone was surprised when that bubble burst.

So, I can see why a young graduate would side-eye home ownership.  Not to mention the fact that most people in their twenties aren't sure where they're going to end up--heck, I kept thinking I wanted to move to various places in the US, then overseas (which I did) before I came back here and planted roots.

And if you live and work in a city, it makes perfect sense to not own a car.  Most cities have decent public transportation so why incur such an expense?  You need a car, you can use something like Zipcar, which rents them by the hour.

Some of the things the article talked about some people renting made no sense to me.  Furniture? You can go to a thrift store and get furniture for much less money than renting it.  Clothing? I mean, sure, for a very formal event I see it, but companies like Rent the Runway seem to have perfectly ordinary (cute, but ordinary) sheath dresses and other clothing items for rent for 10% of their cost.  That sounds great until you realize that simple sheath dress cost $3,000 and that you could buy a perfectly good looking dress for much, much less.

It's also not as if the people interviewed in the article aren't spending money.  They go out to eat.  They take trips.  They aren't living like monks.  It does seem to be more of a mindset than anything.

4 comments:

  1. I think that renting in a big city makes a lot of sense. However, where I live it makes almost no sense because rents are higher than owning here.

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  2. I've never heard of renting normal clothes before! I guess if you really want to be a slave to fashion trends it makes sense, otherwise why not buy clothing at cheaper places, like charity shops?

    I see myself renting a home for a long while yet. I'm just about to go back to Uni for four years, then it's probably chasing research funding, which is normally given in 3-year stages, so I may well have to move a few times until I am offered a more permanent job somewhere. I'm definitely not going to buy a house if I might be moving every 3 years!

    I never want to have a car payment. I plan on saving up for one if I ever want a better one, even if it's a nearly-new car. Little hatchbacks in the UK are often under £10000 new, so give it a few years of depreciation and you can get a reliable new-ish one for £5000. Then run it until it runs no longer (whilst saving for its replacement!)

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  3. What I've seen with a lot of university graduate friends of my son's is they get that great paying career position and they want to live it up for a while -- rent the great apartment, take out a lease on the really sporty car, and buy trendy clothes that will be out of style in 3 months. What it amounts to is renting a lifestyle.

    There are times when renting is the sensible thing. When my husband and I were first married, we rented dirt cheap apartments. We did this for 8 years, while we socked away money for a house. Our goal was to put down 50% on this house. We came close, 45% down. But at that time, we didn't lease a nice car (drove a beater until it died), we had spartan furnishings in our apt, we took cheapo vacations, and ate out rarely, and just for special occasions.

    It isn't just the actual renting of things that will impact your overall wealth. But buying poor quality or trendy stuff that will need replacing soon. This is not much better than renting. You wouldn't buy stock in a company simply because it was cheap. You'd look for a company that was doing well, and buy less stock, but your investment would be a quality one.

    Just my two cents.

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  4. My husband and I rented a duplex for 14 months. After that we never rented anything. After the divorce, I have never rented anything. If I cann0t afford to buy it, even with making payments, I do without. Actually, a car, washer, refrigerator, and microwave are the only things I have paid with payments. Charging things is not ideal, but I have charged so little I have never gotten in trouble. Everything else has been bought with cash. I even did without a dryer until I could afford cash. Clothes, shoes, everything--paid for with cash. I put no food or meals on a cc. I don't live lavishly by any means!

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