Peter Schiff: Why buying a house is not always better than renting a house

Peter talks about buying vs renting a house.

Would you Rent or Buy a House?

There is a very simple metric to see if it's better to buy or rent a house.

Just look at the price to rent ratio.

Price to Rent Ratio

As you can see, Canada has the highest price to rent ratio in this chart, so it is better to rent than to buy a house in Canada. You can also see that Japanese houses are very cheap, so you could buy a house there. The United States is located on the historical average. My country, Belgium is still very highly priced, so I'm not going to buy a house in Belgium soon. For more charts about Belgium, go here.

An additional aspect to look at is the unemployment rate. Countries with a rising unemployment rate typically have a declining housing price index.

Let's take a few examples: Italy, Netherlands and Spain. All of them have a declining housing price and all of them have a rising unemployment rate. So buying houses when the housing price is going down is not a good idea as the biggest chunk of your money is going into the price asset of your house. Loan rates, maintenance, inflation are all sideshows compared to the price of your house.

Housing Prices

Unemployment Rate

On a final note it is also interesting to look at the amount of building permits that have been issued, if the trend of building permits goes up, the housing prices will go up and vice versa. But that data is difficult to find.


More info here:

Belgium housing bubble

The Economist has a nice interactive tool to monitor the house prices from 1975 till 2012: http://www.economist.com/node/21009954

A few interesting observations can be made:

Belgium, where I'm living, is still in an upward trend in housing prices (Chart 1), while this can't be sustainable if we look at house prices against average income (Chart 2). Historically housing prices can only go up when wages go up, because you can't buy a house when you don't earn enough money to buy it/pay it off. I am expecting a similar drop in housing prices in Belgium like what has happened in the US in 2008.

In the United States, we see the collapse starting in 2007 and bottoming out in 2009.

In Japan, we see that house prices are becoming really cheap for Japanese people to buy, which is actually a good thing.

In Hong Kong we also seem to have a housing bubble forming.

Chart 1: House prices in real terms

Chart 2: House prices against average income