You may have recently asked yourself, “Is it even worth it to try to buy a house right now?”
With home prices so high and mortgage rates that won’t go down, renting may seem like the safer choice right now. Or maybe the only thing you can do. You really do feel that way. Also, buying today might not be the best idea; it’s not right now for everyone. For your own safety, you should only buy a house when you’re ready, able, and the time is right.
But there is something you should know about renting.
It might seem like a safer bet right now, and in some places it might even be cheaper each month than owning. But in the long run, it can cost you more.
A recent poll by Bank of America found that 70% of people who want to buy their own home are worried about what renting for a long time will mean for their future. They’re not wrong either.
It may seem impossible to own a home, but if you make a plan now and keep working toward it, you will be very happy with your finances in the long run.
Homeownership Builds Wealth Over Time
Buying a house isn’t just about getting a place to live; it’s also a way to start building your wealth.
Why? Prices of homes tend to go up over time, so the longer you wait, the more it costs to buy. But even in places where home prices are falling right now, the long-term trend (see graph below) says it all:
When you own a home, your equity grows as the value of your home does. What your home is worth minus what you owe is that amount. So, that equity grows every time you pay your mortgage. That adds to your net worth over time.
Nowadays, the average homeowner’s net worth is almost 40 times higher than the average renter’s. I find that difference shocking, and the numbers in the graph below don’t lie:
And this is a big reason why Forbes says:
Even though renting might seem less stressful, owning a home is still a big part of the American dream and a tried-and-true way to get rich in the long run.
The Biggest Downside of Renting
So, why does renting seem like an easier option for a short time? Less responsibility, lower monthly payments, and no strings attached. But for a long time? It might hurt.
For many years, rent has gone up along with home prices going up. And even though rent has been pretty stable lately, the long-term trend is up and to the right. That makes it harder than ever to save for a house (see graph below):
When money is uncertain like that, it really does matter. In the same Bank of America poll, 72% of people who might buy a home said they are worried that rising rent could hurt their short- and long-term finances.
Since rent doesn’t make you rich. It does not come back to you. It’s not your mortgage that it pays, but your landlord’s.
That means you pay a mortgage whether you own or rent. Whose mortgage do you want to pay?
Renting vs. Buying: What Really Matters
Take a look at it this way. You don’t get your money back when you rent. If you own something, your payments add to its value, just like in a savings account. Buying does come with some responsibilities. It does have a reward, though, and that reward grows over time. Which is why you need a good plan to get there.
Joel Berner, Senior Economist at Realtor.com, says it this way:
“Families that are trying to stick to a budget will find it much easier to keep renting than to deal with the costs of owning a home.” But they should think about the equity and family wealth they can build by owning a home that they can’t get by renting one. It might be a better investment in the long run to buy a home, even if the costs are too high right now.
Bottom Line
People may feel like they can rent easier today. It might cost you more in the long run, though, and it won’t help you build anything for the future.