For most Americans, their biggest source of wealth is the equity in their homes. But what if you never own a home? What if being a renter is your fate? How does that impact your future wealth and state of mind?
Homeownership rates for younger Americans have fallen over the past 10 years and are near the lowest levels in more than three decades of recordkeeping. About 40% of young adults ages 25 to 34 were homeowners in 2018 according to federal data analyzed by Freddie Mac. That is down from about 48% in 2001.
In addition, the median age of a home buyer is 46, vastly increased from when I purchased my first home at age 27. According to the National Association of Realtors, this is the oldest median age since they began keeping records in 1981. For young people, it’s a vicious cycle of rents going up and student debt putting more financial pressure on young adults who can’t seem to get a foothold in the American dream.
Generally, lower homeownership promotes lower growth by forcing older Americans to stay in their homes because there are fewer buyers for entry-level properties. And even though the price of entry-level homes has been rising, without savings, the pool of buyers keeps shrinking.
So, is homeownership worth it? Sometimes yes and sometimes no depending on individual needs. These are some of the questions you need to think about:
What can I afford, should I keep paying rent until I find the perfect home, or should I take the plunge now with the goal of trading up down the road?
How long do you plan on staying in the home? If you know your job may relocate you within a year maybe you want to wait before spending the money required to get into a home. Or if you’re living in a “hot” market you may want to go for it with the hope of turning a nice profit in a short period of time.
Even if your job is not a factor, are you the type of person who likes stability or flexibility? Owning a home by definition is not a flexible choice considering maintenance and repairs that are required in most homes, not to mention the cost of upkeep. If you want to be footloose and fancy-free, better keep renting.
Finally, your decision may be all about the family. If you have children, the quality of the schools may be your deciding factor. Do rentals even exist in the school district of your choice or is purchasing a home the only way to provide the best education for your children? Also, having property space for kids to run around may require you to purchase a home.
The advantages of owning your home are many, with building equity and establishing good credit being the primary reasons people buy homes. Even with the new tax laws limiting some deductions, many homeowners may still see tax benefits to owning. And of course, there is the independence of Americans to own their own property and not having to answer to landlords.
The disadvantages of owning start with finances. It costs more money to own and maintain a home than renting. When you rent, someone else is responsible for the repairs and the cost of those repairs. Renting also insulates you from falling home values, which we all remember has happened.
It’s nice to have a choice in life and a choice in whether you want to own or rent. Unfortunately, it appears we are building an ever-increasing group of permanent renters who may not have another choice. Let’s hope the American dream isn’t shattered forever.
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