Should I rent or buy a home?
Lately, this topic has come up a lot in my conversations with friends who are in their 30s. Some of them are based in China, watching house prices decline for the past 2 years and wondering if it’s bottomed. Some in Australia, UK and EU, seeing the significant drop in mortgage rates led by central bank decisions, and contemplating becoming a homeowner rather than "helping the landlord to pay off their mortgage".
This is a fundamental question that troubles many many people, and I’m not an expert that can give an one-size-fits-all answer. Today we'll explore 10 common misconceptions about Renting vs Buying by examining the research of Professor Eli Beracha, the world's 3rd ranked Real-Estate-Academic-Leadership author in this field.
This article draws from his three influential papers and two in-depth podcast interviews, plus other supporting research. Through his analysis of over 30 years U.S. real estate data, he uncovered a mind-boggling truth:
While conventional wisdom about homeownership may be right, it does so for the wrong reasons.
The 10 Major Misconceptions
Misconception 1: "Buying is always better than renting"
Contrary to the common belief that renting is "throwing money away”, from a purely financial perspective, renting can lead to higher wealth accumulation on an unadjusted basis. The research analysed over 30 years of data from the 1980s to 2010s found that if viewed purely from an investment return perspective, renters who invest their savings in stocks and bonds often accumulate more wealth than homeowners. This makes theoretical sense—
"Because you spend less on housing costs through renting, and then by investing that difference wisely, you can get ahead or at least reach an equivalent level."
But the key lies in the premise of "wisely investing."
Misconception 2: "Renting is just paying your landlord's mortgage"
This is the most misleading statement, causing countless people to ignore the real costs of buying.
In reality, both buying and renting have 'disappearing money,' but most people selectively ignore the sunk costs of buying.
"Disappearing money" refers to money you pay out that you'll never get back—essentially pure consumption rather than investment. For renters, the "disappearing money" is simple: rent. But the sunk costs of homeowners are severely underestimated: mortgage interest, property tax, insurance, maintenance, transaction costs, and the opportunity cost of the initial capital.
The danger of this misconception is that it creates the illusion that buying a house "doesn't cost money."
Misconception 3: “House prices only go one way—up.”
Typical cognitive bias leads people to overestimate real estate investment returns. It's precisely this widespread perception that gives real estate certain "rational bubble" characteristics. People only remember the purchase price and selling price, completely forgetting the inputs and time costs in between. In reality:
"Long-term house price increases basically equal the inflation rate, with almost zero growth after adjusting for inflation."
From the data:
U.S. 1890-2020 (130 years): Annual house price growth rate approximately 3.2%
Inflation rate same period: approximately 2.9%
Real growth after inflation: only 0.3%
Real housing appreciation in the U.S. (1890–2009). Over this 120-year period, the average annual real compound growth rate of real estate was only about 0.3%. Data source: Robert Shiller’s Irrational Exuberance website, www.irrationalexuberance.com.
Misconception 4: Houses are safer than stocks
Many people believe real estate is safer than stock, and this view is widespread:
"Houses are tangible and safe, stocks are just numbers on a screen."
But this completely ignores the real risks of a single property. Real estate actually has many hidden risks: Using a typical American freestanding house as an example, from daily issues like mold and pests, to neighbor building an extension that blocks your view, school rezoning, and even earthquakes and floods—these events impact single property far more than the impact on a diversified investment portfolio.
In comparison, stock funds consist of hundreds or thousands of the world's best companies across various industries. This diversification is a much better protection to uncertainties than that of a single asset.
Misconception 5: Homeowners are wealthier than renters, so buying makes people rich
This is a textbook example of "treating correlation as causation." Data indeed shows homeowners have on average 40 times the wealth of renters, but:
It's not buying homes that makes people wealthy, but rather wealthy people are more likely to buy homes. It's like saying people who wear Rolex watches are more successful, but the Rolex didn't make them successful.
Key finding from research: A wealth threshold effect
Data modeling shows surprising results: When one's net worth is below the value of one house, renting actually provides higher long-term returns. Only when you already have sufficient wealth then buying truly become advantageous.

Misconception 6: Since renting is better, you should never buy any property
Theoretical result and practical experience are completely different. Human’s inherent behaviour weaknesses determine that buying is better for the vast majority of people.
Because buying is essentially "forced saving"—even if you don't understand investing or lack self-control, you can passively save money through mortgage payments.
To put it simply:
"You don't have a choice between paying your mortgage and not paying the mortgage, but you do have a choice between saving and spending."
Why is "forcing" so crucial? Renters can theoretically invest their savings in stocks, bonds, gold, crypto and other diversified asset portfolios for higher returns, but in reality, most people can't do this—they'll pause, reduce, or withdraw investments for various reasons, ultimately ending up with zero savings. Not paying a mortgage means losing the house, and this "forced saving" mechanism helps buyers overcome human weaknesses.
Unexpected advantages of real estate: The "disadvantages" of real estate—opaque pricing, poor liquidity, high transaction barriers—actually prevent impulsive decisions. Stock price updates every second, easily triggering emotional behaviors like FOMO (Fear of Missing Out) and FUD (Fear, Uncertainty, Doubt), leading to emotional trading activities. Houses only truly reveal their exact value when put on the market, and selling requires a complex 2-3 months process. These "hassles" prevent emotional decisions that have significant financial implications. This is similar to buying physical gold—precisely because trading is troublesome, people tend to hold long-term, avoiding emotional behaviours.
In summary:
The seemingly negative aspects of real estate actually become advantages for saving—working with human weaknesses instead of fighting against them.
Misconception 7: Everyone should buy a house
Three types of people should avoid buying houses, as homeownership would work against their interests. The professor clearly identifies:
people with unstable financial situation that can't afford a 15-year mortgage
young professionals who frequently change cities, and
high-net-worth individuals with sufficient investment discipline.
Do you fit the bill for any of these 3 categories?
The first group would be dragged down by the house, the second would miss opportunities, and the third doesn't need “forced saving”.
Misconception 8: House prices are unpredictable
Actually, real estate markets are more predictable than stock markets; the key is finding the right method. Professor Beracha just won first place in a "prediction" competition among 150 real estate economists, earning the somewhat ironic "Crystal Ball Award."
His model incorporates various metrics but the core is quite simple: Rent-to-price ratio = Annual rent/Total house price
Principle: When house prices in a city are too high relative to rents, the market self-corrects. Like stock P/E ratios, when rent-to-price ratios deviate too far from historical averages, they would revert to normal:
U.S. reasonable level: 3-4%
China reasonable level: 2% (due to lower interest rates)

But note:
"This model doesn't predict absolute gains, but relative performance—comparing horizontally, which markets will outperform others."
Misconception 9: Tier-1 cities are "too expensive" to buy
In ultra-high-priced cities with extremely low rent-to-price ratios, traditional buying logic fails. Why?
Severely imbalanced rent-to-price ratios: Renting is almost always more financially sensible, and the opportunity cost of buying is enormous—investing the same money in other assets could yield far better long-term returns than real estate itself.
Liquidity trap: All wealth locked in real estate limits career choices, geographic mobility and investment decisions, lacking flexibility when facing emergencies/opportunities.
But when is it still worth buying?
Ultra-high income groups: Low mortgage payment pressure with sufficient funds for other investments
Clear long-term demand: Those who need a long-term residence for education etc., willing to pay premium for certainty
Special professional needs: Work strongly tied to specific locations, unstable rental market
Many people buy because they worry "if I don't buy now, I'll never afford it," but in ultra-high-priced cities, buying is often an emotional rather than rational decision. It's precisely because of widespread public irrationality that these cities’ house prices remain "bubbly". If you really want to buy, ensure it's a well-considered rational choice, not an impulse decision driven by social pressure.
Misconception 10: The decision making process is the same for everyone
The logic of buying for the rich and the rest differs dramatically. For high-net-worth individuals, real estate is a hedging tool in investment portfolios that can improve overall risk-return ratios. But for the middle class, from a rational perspective, if real estate comprises too high a percentage of net worth, risk becomes overly concentrated. This means while both are buying houses, the wealthy are allocating their wealth in different assets but for ordinary people this is going all-in on a singular asset.
But beyond rational analysis, we can't deny that real estate differs fundamentally from stocks—it's not just an asset but it brings many values that can't be measured in money, such as:
Emotional value: Sense of belonging, stability and control
Practical value: Renovation freedom, pet-friendly, storage space
Social value: Children's education, neighborhood relationships, family gatherings
So my recommendation is:
"Don't let others' success models dictate your choices. There’s no standard answer—only the one that suits you best."
References
Beracha, E., & Johnson, K. H. (2012). Lessons from Over 30 Years of Buy versus Rent Decisions: Is the American Dream Always Wise? Real Estate Economics, 40(2), 217–247. https://doi.org/10.1111/j.1540-6229.2011.00321.x
Beracha, E., & Skiba, H. (2013, August). Findings from a Cross-Sectional Housing Risk-Factor Model. The Journal of Real Estate Finance and Economics. https://doi.org/10.1007/s11146-011-9360-x
Beracha, E., Skiba, A., & Johnson, K. H. (2017). Housing Ownership Decision Making in the Framework of Household Portfolio Choice. Journal of Real Estate Research, 39(2), 263–289. https://doi.org/10.1080/10835547.2017.12091472
Case, K. E., & Shiller, R. J. (1989). The Efficiency of the Market for Single-Family Homes. The American Economic Review, 79(1), 125–137. http://www.jstor.org/stable/1804778
David Siddons Group. (2024, November 27). The Fundamentals Driving Miami’s Real Estate Resilience with Prof. Eli Beracha [Video]. YouTube. Retrieved from David Siddons Group YouTube channel.
Linping Residential Big Data Research Institute [麟评居住大数据研究院]. (2024, September). Rent-to-Sale Ratio in Different Chinese Cities and Global Comparative Analysis [中国不同城市租售比 及全球对比分析].
Money. (2025, June). Homeowners are now 43 times wealthier than renters. https://money.com/homeowners-wealthier-than-renters-net-worth/
Saginor, J. (2025). The Real Estate Academic Leadership (REAL) Rankings for 2020–2024. Journal of Real Estate Literature, ahead-of-print(ahead-of-print). https://doi.org/10.1080/09277544.2025.2476876
The Rational Reminder Podcast. (2024, June 18). Eli Beracha: An Academic Perspective on Renting vs. Owning a Home | Rational Reminder 358 [Video]. YouTube. Retrieved from The Rational Reminder Podcast YouTube channel.