Home Ownership: Not Worth It?

Today, The Juice starts a two-day series on the changing housing landscape. 

You know it’s more expensive than ever to become a homeowner and service a mortgage. 

Interesting data to add to this narrative in a moment. First, consider how young people used to prepare for homeownership compared to the current reality: 

• Live with Mom and Dad while saving for a down payment. Today, young people are living with their parents not to save for a house, but because they can’t afford day-to-day living. Among Gen Zs and millennials living on their own, lots aren’t financially independent. 
  • 51% of Gen Zs and 19% of millennials live with Ma and Pa.
  • 54% of Gen Zs and 26% of millennials say their parents helped them pay for something over the past year. 
  • For 36% of Gen Zs and 17% of millennials, that “something” was rent or mortgage payments. 
• Rent an apartment so you can save for a house. The idea is it’s less expensive to rent, so you pocket the savings, move into a house, and eventually homeownership reaps financial rewards versus throwing away money on rent. Sounds like a solid plan, except for one caveat…

In some cities, home ownership doesn’t make financial sense, even in the face of high – and recent record – rental prices. And even if it might make sense one day (say, after you build some equity and, hopefully, refinance at a lower interest rate), it’s too expensive at the outset for many people in the current environment to dive in. 

According to the National Multifamily Housing Council (NMHC), as of Q4 2022, the monthly premium to buy vs. rent is at its highest since the peak of the housing bubble in Q3 2006. 

At the end of 2022, the monthly cost to own a home was $1,176 more than monthly rent at a professionally managed apartment. 

This figure doesn’t account for the down payment you’ll need to secure a mortgage. The NMHC estimates that down payments have risen 35.5% over the last three years. 

As rents continue to ease, especially on smaller apartments such as studios and in relatively expensive coastal markets, this discrepancy might become even more pronounced. 

The NMHC analysis shows, for example, that all the cities in the chart above saw “negative real rent growth over the past three years.” 

It’s expensive to rent, no doubt. But it appears that on average across the U.S., it’s less expensive than plunging into home ownership. If you’re even in the financial position to get on the diving board. 

The Bottom Line: Yes, things suck. But opportunities to buy exist in real estate markets across the country. We’ll dig into this more optimistic part of the story in part two of our series tomorrow.

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