As purchasing a home has become more expensive than ever before, many Americans are now considering themselves forever renters with no plans to enter the housing market. According to research from Apartment List, 18% of millennial renters believe they will rent for the rest of their lives, which has steadily increased since 2018. This shift has impacted the real estate market, leading to the development of new neighborhoods, changing how people save money.

Here are some benefits of renting or owning based on your financial situation.

Why is the Current Market Challenging?

Rising costs and limited inventory have many would-be homebuyers feeling blocked out of the housing market.

• High Inflation: High inflation has led to a challenging market. When inflation increases, mortgage rates often follow, making it more expensive to purchase a house.
• Increased Building Material Costs: Supply-chain disruptions and labor shortages are adding pressure to rising prices. The average cost for materials to build a single-family home jumped 42% from 2018 to 2021, making the price of a new home exponentially more expensive.
• High Demand + Low Supply = Record High Home Prices: During the pandemic, the housing market saw historically low-interest rates (under 3%). As a result, this drove up demand in an already supplied-constrained housing market due to years of underbuilding. That combination of high demand and low supply increased housing prices substantially, making homeownership even more unaffordable. 

Advantages of Buying Versus Renting

1. Build Wealth.

In 2019, the average net worth of a homeowner was $255,000 while a renter was $6,300. These figures reflect purchasing a house is a reliable path to building sustainable, long-term wealth.

2. Build Equity.

What’s more, your monthly mortgage payments, excluding interest, gradually build equity (the difference between what your home is worth and what you owe on your loan). Equity can be used in a variety of ways from financing home improvements, paying for college tuition, settling outstanding balances to starting a business.

3. Increased Property Value.

Depending on several factors, home values tend to increase over time. If you purchase a home in a growing neighborhood or city where companies are relocating, jobs are coming in and there’s a lot of development taking place, you may see some sizable increases in your home’s appreciation.  

4. Customization.

Owning a home comes with the flexibility to fully customize to your liking. Whether it’s new countertops or zero scaping, there’s no landlord enforcing rules.

5. Tax Deductions.

The IRS allows homeowners to deduct expenses including state and local real estate taxes, home mortgage interest, insurance premiums, and more. It’s important to consult a tax professional to ensure you’re filing correctly.

Advantages of Renting Versus Buying

1. Flexibility.

Just because real estate is a proven path it doesn’t mean it is the right fit for everyone. People who decide to rent have greater flexibility in their living situation. If you plan on traveling or have to move often for work, renting may benefit your lifestyle.

2. No or Low Maintenance Costs.

It’s important to consider renters don’t have to pay for large home repairs. This means your landlord assumes the responsibility for any maintenance or repairs, whether replacing necessary amenities or, sometimes, yard upkeep. Be sure to thoroughly read the terms and conditions of your lease before signing and committing.  

3. Luxury Living.

In some cases, renting allows families and individuals to live in more luxurious homes than they can afford to purchase. Renting may come with more amenities like a community pool, valet trash, or access to a gym, saving you money on outside memberships.

4. Upfront Costs are Lower.

While you typically have to pay a deposit or first and last month’s rent to secure an apartment, those are usually less than putting down money for a home. Of course, everyone’s situation is different.

5. No Property Taxes.

Homeowners typically pay an annual tax on their home, which can amount to thousands of dollars each year, depending on the property. Renting may spare you from another large annual expense.

Investment Considerations If You Aren’t Planning to Buy

If buying a house is not a realistic goal for you, there are other ways you can invest your money to set yourself up for financial success.

1. Diversify Your Investment.

Diversification is the act of spreading investment dollars across a range of assets to reduce investment risk. If you aren’t planning on purchasing a house, you could consider diversifying your investment portfolio as an alternative.

2. Invest in Real Estate.

Forever renters can still invest in real estate — whether it’s purchasing an investment property in a less expensive market and managing it from afar or investing in real-estate investment trusts or other tradable securities. They can still ensure their portfolio has a healthy range of diversity. As always, when making big financial decisions, it’s beneficial to consult an advisor or investment planner.

Resources for First-Time Homebuyers

1. Down Payment Assistance.

However, if you’re interested in buying, there are various programs available to help first-time homebuyers break into the housing market. These programs include tax breaks, down payment assistance, and homeowner education resources. Some mortgage lenders offer deals benefitting first-time homebuyers, offering down payment assistance programs, and low-cost home loans.

2. Homeownership Education.

Non-financial support is also available for first-time homebuyers, such as access to free online homeowner education courses providing advice on purchasing a home. These courses assist buyers in navigating what’s involved in finding, financing, and owning a home. Depending on the mortgage lender, some may even require you to take one of these courses.

• Check out “Your Path to Owning a Home in 5 Easy Steps” at efirstbank.com/education or Fanniemae.com/education to learn more.

3. Affordable Housing.

The U.S. Department of Housing and Urban Development (HUD) website offers a plethora of resources including rental assistance, public housing, rental relief, and more. Additionally, FirstBank has financed over $500 million in affordable housing since 2020, including $160 million in 2023. Many of these developments offer ‘for rent’ and ‘for sale’ units. Check out ‘Unlocking Colorado’ or ‘Unlocking Arizona’ to learn more about FirstBank’s affordable housing initiatives.

The Bottom Line

Deciding when to purchase a home is a personal choice as needs vary. Whether it’s purchasing a home or investing in an alternative opportunity, it’s important to have financial avenues setting your future up for success. For more resources, visit the Homeownership page at efirstbankblog.com.

*Fees and restrictions may apply.

Member FDIC | Equal Housing Lender | NMLS ID #458768

“This page may contain links to external websites. These links are displayed for your convenience. FirstBank does not manage these sites and assumes no responsibility for the content, links, privacy policy, or security policy.”