Home Ownership & Wealth Generation: Should you be renting?

A recent study has suggested that renting an apartment can make you more money than owning a home.  As shocking as this may sound, a thorough review of the data, reveals you should take your time before doing anything drastic.

A Revision of the American Dream of Homeownership,”published in 2017, does not outright tell us that renting is more profitable, but sobers us with the fact that property appreciation is not as wealth generating as we have come to believe.

pexels-photo-572056.jpegHome owners tend to accumulate wealth more than renters, now, due to the accumulation of a strong down payment for a house.  From saving for a down payment to switching to home ownership, owners generate wealth easily while renters do not.

The study however, suggests that renters who invest in the stock market could easily outperform homeowners that do not.  “When you assume that those monies are reinvested at a rate of return, renting, on average, wins in terms of wealth creation,” states the study’s authors.

Also noted by the study, is that “the difference in wealth between renting and owning can be most affected by choices within the scope of the individual rather than through the impact of exogenous market variables.”

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Millennials: Buying or Renting…and why?

There is no shortage of opinions or statistics about where and how the Millennial generation is choosing to live. We hear tropes all the time about how the young generation is flocking to urban areas, but at the same time there’s a constant drone about how they’re staying in mom and dad’s basement.

Articles abound, discussing how Millennials cannot afford to buy (or even rent in a lot of cities!) because they are saddled with debts from college. Housing costs are skyrocketing, while news stories tell us all about how Millennials are lazy, entitled, and always glued to a screen.

Team of creative people taking a break and using computer.

Millennials, like all Americans, understand the value of homeownership, but our goals and our realities may not always make owning a home a possibility, and cities, governments, and responsible developers have a role to play in helping us (and all us 99%) figure out ways to make our living choices possible, whether we rent or buy.

The signs that Millennials are ready to buy are out there:  According to a Trulia analysis of Census Bureau data, in the first quarter of 2017, more new households were formed as a purchase rather than a lease, the first time that happened in 11 years.

Other data shows that in 65% of the country, an average mortgage is less than the average rent!

Regardless of generation, one can see the value in that. Some developers are taking the path of trying to get more starter homes on the market after many years flooding the market with luxury units and McMansions.

There was a 27% increase (up to 31% of the market total) in speculative new homes under 2,250 square feet from January to March in 2017 versus the same period in 2016. And with the trend of more dense urban living, some developers are also buying and reselling homes in and around city centers where there is less land for redevelopment.

But, there are still plenty of factors pointing to a love (or need) for renting. Many Millennials are simply not ready to take the plunge into ownership, knowing that a lease can offer attractive features that a mortgage just cannot.

Others are suffering from the 8% unemployment rate for their generation and spending their money on their portion of the $1 trillion in student debt loan instead of the often 10% down payment required to purchase a home – not to mention the convenience of avoiding ongoing maintenance and repairs, insurance, etc that are not typically required with a lease.

1Consider too that many apartments today offer gyms, pools, connectivity, possibly a concierge – things not available to a homeowner. And while the tides may be changing, many apartments are still located in more community-oriented areas of town than an affordable home, with easier access to culture, nightlife, and public transit among other perks. Unlike with a purchase, a lease is temporary, so it’s very easy to pack up and leave when or if the desire strikes.

In sum, while it’s as easy to point out facts, figures, and opinions about Millennials as it has been and still is for Boomers, Gen X, and all those who preceded and will follow them, the takeaway is that each generation is made up of multi-faceted individuals with a huge variety of tastes, goals, and means. Markets shift over time and there will always be innumerable different combinations of needs, wants, and abilities when it comes to where we choose to live.