In the US, owning one’s own home has always been portrayed as the ultimate dream and people strive to do so as soon as they have some kind of stability in terms of jobs and location. The equity in one’s home was portrayed as the best way to save for financial security and indeed for most people, the value of their home is their most substantial asset.
An owned home is typically the most valuable asset for U.S. homeowners. Black and Hispanic homeowners typically derive a higher share of their wealth from owned homes than White and Asian households.
…In 2021, 62% of U.S. households lived in homes they owned as their primary residence. But homeownership is less common among Black, Hispanic and multiracial households. In 2021, 40% of Black households, 47% of Hispanic households and 45% of multiracial households owned their primary residence. In the same year, 70% of White households and 58% of Asian households lived in homes they owned.
But as the prices of homes have increased along with mortgage rates, that dream of homeownership has become increasingly elusive for many. Now people are beginning to question whether buying a home is even desirable.
In more than half of U.S. states, an apartment dweller would expect to spend three or more years saving for a down payment, according to the report. But let’s also acknowledge the unrealistic expectations of a renter spending no money, outside of their basic necessities, for several years — no new clothing, restaurant dinners or trip to the movies, not a single plane ticket or unexpected car repair — in order to save for a down payment.
Given the gargantuan lift required of today’s renters to become homeowners, it’s worth asking: Does it actually make sense to buy a home?
That depends on who you ask. Ramit Sethi, a personal finance expert and bestselling author of “I Will Teach You To Be Rich,” told Salon earlier this year that he’s made more money as a renter than a homeowner, in large part by investing in the stock market with the cash he would’ve otherwise spent on home repairs or maintenance in a given year.
“This is like telling people the sky is green — they simply cannot compute it, and they use the same argument,” Sethi told Salon. “What about equity? Well, I have equity, too. It just happens to be in the top 500 companies in America.”
Homeownership, in its simplest form, is a form of forced savings. Each month, whoever took out the mortgage is forced to set aside many hundreds, if not thousands, of dollars toward acquiring a piece of property that, if all shakes out, will be worth far more than its appraised value at the time the homeowner first bought it. For a handful of generations, that proposition mostly bore out: Over the last 20 years, the average home price in the U.S. has risen from $140,000 to roughly $420,000, according to Zillow — a nearly 200% increase in value.
But on a year-to-year basis, stock market gains typically exceed home value hikes over a 12-month period. Annual returns from the S&P 500 stock index typically hover between 6.5% and 7%, compared to average home value gains of 4.7% since the year 2000.
After living a somewhat nomadic existence in rental properties, we finally bought a home, the only one I have ever owned, in 1989. My children were pre-schoolers then and we chose a location where we liked the schools and the neighborhood. I did not view buying a house as an investment but so as to have a nice place in which we wanted to live for some time that was good for children. And it worked out well and I enjoyed living there for 30 years. The home did not appreciate greatly in value but that was not the reason we bought it. We just wanted to put down roots while the children were growing up.
When I made the move to California in 2019, I decided that I wanted to simplify my life as much as I could and have as few possessions as possible. So I decided that I would rent so that I did not have all the hassle of home ownership such as repairs and yard maintenance and insurance and property taxes and all the other things that owners have to deal with. I drove to California bringing only the things that would fit into the trunk of my car and I have been determined not to buy anything that is not absolutely necessary so that my belongings have remained few. My living arrangements were accurately described by a visitor as ‘Spartan’ but I find it perfectly comfortable and suits my needs.
So far I have lived in my small rental apartment for nearly six years and it has worked out very well for me. I do not have to worry about anything breaking down because if anything needs fixing, I simply tell the property manager and she sends someone to promptly take care of it. The one major drawback is the lack of stability because the owner of the property may want it back for whatever reason. Since I look after the place very carefully, the owner has said that he would really like me to stay on as a tenant. But if he does need me to vacate for whatever reason, since I have very few possessions, moving would not be difficult so it does not worry me.
i actually bought a condo because the cost of rent was increasing faster than property taxes and it was the only hope we had of not ending up in the streets. the timing was right to tap a big chunk of my mother-in-law’s retirement for the down payment (she lives here too). rent for most people is a horrible gouge that keeps us on the verge of disaster. now i’m on the verge of disaster but at least gradually paying the disaster down.
You owning a home makes more work for your heirs.
am no breeder
That’s a nice security to fall back on should the stock market crash. Can others rely on similar?
@ 6 Holms
You get that property is also a market, and also that houses can burn down or face other calamities, right?
(Stock market investments can be hedged (insured) similar to property investments.)
Saying you can invest in the stock market instead of buying a house assumes that the money spent on rent will be significantly less than the money that would be spent on a mortgage and house maintenance.
That usually isn’t true.
A house is also not just an investment. It’s where you live. There are significant differences between renting and owning in terms of security of tenure and ability to make changes.
Unless one is not going to be staying on one place (e.g. moving around a lot as you move jobs) I think buying makes a lot of sense.
Not one of the landlords from whom I have rented have been professional landlords providing a good service. All have been focused solely on extracting maximum value from an asset (usually inherited) to create a very passive income.
When landlords in this country (UK) realise they can jack your rent or turf you out to charge even higher rates from the next renter, they all make that effort:reward calculation. Some even spend their time planning to make your exit as lucrative as possible.
I’m lucky, the worst experience I’ve had was being forced to pay for a costly professional clean of an old carpet. They wanted to charge me for the peeling wallpaper in a bathroom, but I reminded them of its condition at the outset and that they had refused permission for changes like installing ventilation.
The concept of a professional landlord who sees their function as providing a home, for a reasonable fee, to someone who does not want to spend time learning how to be a non-predated renter, is a great idea in principle though. I heard (years ago) that such landlords existed in Switzerland because of regulation. I hope the idea catches on.
Exactly. You have to spend the money anyway, the question is where it ends up. In my local property market, rent is far in excess of what you would pay to service a mortgage on the same property and maintain it -- in fact it has to be, because that’s how landlords make their money. (Full disclosure -- I know this for certain because I own a rental property.)
I’ve been a homeowner for nearly 25 years, and if I’d been paying market rents and investing the difference between that and what I’ve spent on my mortgages and maintenance over that time, I’d be (at least) tens of thousands of pounds worse off, because the difference between a market rent and the cost of owning and maintaining a property is a negative number. The reality is that I’ve been investing the money I saved by not paying rent. Then there’s been the capital gain on the property itself, which has been very significant -- I live in a very hot market.
The other problem with the “but maintenance costs!” argument is that, as EigenSprocketUK points out, most landlords are absolutely terrible when it comes to maintenance. If you’re responsible for maintaining your own property, at least it gets done.
#5 sbob
Are you actually disputing that real estate is far more stable than stock investment??
Another plug for owning your own property: the neighbors. Great neighbors are great in whatever situation you live in, but if you have terrible neighbors, in a single-family home at least you’re not sharing a wall with them or fighting for parking because they each own 7 vehicles.
In favor of renting: many of the newer buildings offer more amenities. My youngest shared a brand-new 2-bedroom apartment with a friend before buying a townhouse. Split halfway, the rent was about what you’d pay for a mortgage, but the apartment complex had a shockingly good weight room, a parking garage with pass-controlled entry and exit, outdoor grills for the residents’ use, a ground-floor dog wash station (tiled room with raised bathtubs and water hose), a games room on every floor with a kitchenette, floor-to-ceiling windows overlooking a meadow and woods, and a fireplace, a party room with projector for movies, gardened walking trail that met up with the county walking trail, and an outdoor pool for summertime use. And package deliveries could be left at the office for safety. The townhouse community lacks all of that.
As an early-issue millennial I have been renting all my adult life, though fortunately the payments have been entirely within my means. I pay about 40% of my post-tax income on rent and council tax, which still leaves plenty for essentials, discretionary spending and savings. Since I am in line to inherit my parents’ cottage in the countryside (which I grew up in, still think of as my home, and return to for the holidays) I plan to retire there when the time comes, probably with my twin brother. The family does not need additional properties, so I have never felt the need to put money into buying one (also the process seems so stressfully bureaucratic that I am put right off even trying). I consider myself very fortunate to have such circumstances, particularly as my landlady is very hands-off and lets me get on with things pretty much unmolested. Renting also has the advantage that I can live in a flat next to the railway station, because I can’t drive and need the trains for going to work, going home to my parents and visiting my friends in London.
I recently shifted from renting to owning.
There has been a lot for me to do with the new property and I’ve been putting quite a bit of money into it. So yes, that is a thing, although I should point out that while some of it has been standard maintenance the last owner didn’t keep up with, some of it has also been upgrades.
What I’m getting away from is increasingly predatory rent terms that of course I don’t have any say in whatsoever besides just going elsewhere. And an apartment management company that uses RealPage to seemingly illegally collude with other apartment owners in the area to artificially inflate rent prices. Rent prices went up faster than anything else did, some years they shot up by 10-15%.
Overall I pay more for my mortgage this year than I would if I stayed renting. But the only part of my mortgage that’s going to increase is the property taxes I pay into escrow. My property taxes would have to increase by more than a third every year to keep the same pace rent increases have been the last few years.
I also find it very weird how often people reach for the idea of adding a middleman to supposedly save on costs. Your apartment owners are middlemen between you and the place you live. Just like when companies outsource staff or hire workers through a staffing/temp place, adding middlemen adds extra mouths to feed. They’re not running charities. In order for it to really be cheaper the arrangement has to be so efficient that the benefits outpace the profit motive (and greed) the middlemen have. That’s possible but I don’t see it very often.
I don’t know whether it’s also true in the USA, but in Australia, there’s a strong correlation between renting in retirement and poverty.
“It’s a disturbing statistic: half of all people renting in retirement are living in poverty.”
“Why would that be the case? It’s pretty simple: the age pension assumes home ownership. So, if you add on even the cheapest rent, you need extra regular income to fund it.”
https://www.abc.net.au/news/2024-03-16/generation-of-renters-risk-poverty-in-retirement/103592710