Buying a house used to be the most common way for middle-class Americans to accumulate wealth – saving for a down payment when young, paying off a mortgage while working, and having a property to show for in retirement. However, with skyrocketing home prices and stubbornly high interest rates, more and more young people are beginning to doubt whether this traditional path is still viable. If they can’t afford a home in their lifetime, are they destined to be poorer than others?
According to a report by MarketWatch on September 16, an increasing number of young Americans are reconsidering the idea that buying a home is essential for wealth accumulation. The report featured interviews with several young individuals who have chosen to continue renting, delay buying a home, or reassess their housing options. Economists were consulted to assess the long-term financial differences between renting and buying a home.
Tanisha Saunders, who graduated from college eight years ago, once thought she would eventually buy a house. She researched first-time homebuyer assistance programs and took steps toward that goal.
But in recent years, at the age of 36, she says she has “liberated” herself – completely let go of the idea of buying a house.
“The prices are so high that I don’t even see it as a viable life option for me,” she said. What gives her pause is not just the price but also insurance fees, property taxes, and the increasing climate risks in Los Angeles where she resides. Security is particularly important to her – having experienced homelessness and housing instability in the past, she is more concerned about the “what ifs” in life.
The two-bedroom apartment she currently lives in is provided by her company as part of compensation, which spares her from rent pressure. However, the anxiety over rising costs of everyday essentials is still lingering. She and her friends often lament that buying a house is much harder for them compared to their parents or older siblings.
“Considering how expensive everything is in our country now, on top of thinking about buying a house, it just feels insane,” she said. “The entire environment has changed.”
She is not alone. The median home price in the U.S. is now about five times the median household income, compared to a ratio closer to three times in the past. Over the past 20 years, homeownership among those in their 30s has dropped by over 5 percentage points. Currently, only 29% of Americans aged 18 to 34 intend to buy a home in the next five years, down from 57% in 2015.
Naomi Mortensen, aged 30, has also always wanted to buy a house, but with rent, student loans, utility bills, daily expenses, and emergency savings, she and her partner have never saved enough for a down payment. They want to stay near Washington D.C. for work convenience, but the median home price there is around $565,000, far beyond what they can afford.
“Continuing to rent just doesn’t give much confidence about the future,” she said. “It’s anxiety-inducing.”
Even if they saved enough money, Mortensen is unsure if they dare to buy. With housing prices and interest rates soaring in recent years, she worries that locking their money into a long-term asset will restrict them when it comes to changing jobs, moving, or taking care of elderly family members.
So, does not buying a house really make you poorer?
Mark Zandi, Chief Economist at Moody’s Analytics, did some calculations: buying a house at 30 for $405,400 with a 20% down payment, 30-year mortgage at 6.1% interest, and a 4% annual increase in home value – by age 65, the mortgage would be paid off, and the housing equity would be close to $1.6 million. Delaying until 40 to buy, at 65, the housing wealth is slightly above $1 million, with the mortgage not yet paid off; waiting until 45 to buy, the housing equity is around $888,000, and repayment continues during the initial years of retirement.
It sounds like buying earlier is more advantageous.
But Zandi also calculated another scenario. If someone chooses to rent long-term and invest approximately $800 per month in the early stages of constructing an investment portfolio, with a stock annual return of 8% and a 3% annual increase in rental costs – in some cases, the accumulated wealth could exceed that of homeowners. This is just a model; the stock market does not guarantee an 8% return each year, and rents do not increase steadily by 3%. Nonetheless, it at least disproves a simple equation: no house doesn’t mean no assets.
However, this calculation is not always foolproof. A study from Tufts University tracked the wealth trajectories of two groups of low-income tenants: one group began renting in 1984, and the other in 1999, and some individuals from both groups later purchased homes.
After buying homes, the 1984 cohort had higher wealth compared to those who continued to rent. However, the 1999 cohort who bought homes had lower wealth than renters – due to experiencing the economic downturn from 2007 to 2009, many carried high-interest mortgages and ended up facing foreclosure.
Study author Jeffrey Zabel stated, “Whether buying a home is ultimately worthwhile depends on how the housing market performs going forward, which is unpredictable.”
James Choi, a finance professor at the Yale School of Management, mentioned that if a person continues to save and invest outside of homeownership, the financial advantage of buying a home is not as clear-cut.
Patrick Yaghoobians, aged 30, took a different path. He had been saving to buy a house since he was 20, accumulating $45,000, only to use this “house fund” to start a financial planning company.
“Even with a decent amount saved, buying a home in Southern California is still far off,” he said.
Now living with his parents, he invests the saved housing expenses into his business and retirement funds – buying a house is no longer his top priority.
Financial planner Caleb Pepperday has experienced both sides. He once bought a house in Pittsburgh, lived there for two years, then sold it due to his wife’s job change, and is now back to renting.
“Not sure how long we’ll stay here, don’t want to lock our money in one house,” he said.
Even those who have already bought homes are reevaluating their decisions.
Jesse Beeler, who bought his first house at 23 and is now 30, has sold a house once and is starting to question whether owning a house brings enough returns to justify the current risks – while the house holds housing equity, the money can’t be readily accessed unless borrowed or sold.
Jenny Schuetz, Vice President of Infrastructure and Housing at a real estate investment firm Arnold Ventures, warns that buying a house doesn’t guarantee wealth. Timing of purchase, property prices, loan costs, and future market trends all influence the outcome.
Indeed, buying a house offers a tangible benefit: every month paying off the mortgage, a portion of which gradually transforms into your housing equity – over 30 years, it’s like a form of enforced savings. Renting doesn’t have this mechanism – the $800 per month in Zandi’s calculation doesn’t automatically disappear from your bank account, and no one urges you to keep investing for 35 years. Interruptions like unemployment, having a child, buying a car, or a steep stock market drop could halt the process.
Therefore, having not bought a house for a lifetime could lead to completely different outcomes.