Is Buying a Home or Renting Right for You?

Housing Over Time: A Human Capital Approach

A strong argument can be made—absent all the psychic factors involved in the decision—that renting is the optimal choice when you are young.

However, when you are older (say 50 or 60) and you have unlocked a large portion of your illiquid and nontradable human capital and converted it into financial capital, you can afford to “freeze” some financial capital and lock into a home purchase. At that stage, not only do you have more wealth in total, but also your balance sheet (and especially your human capital) is likely not as sensitive to the state of the economy and its disruptive impact on wages.

Now, you might justifiably worry here that if you don’t buy a house when you’re young, you might never be ...