Renting can seem less expensive and simpler than purchasing a home, especially right now. You don’t have to worry about repairs, property taxes, or mortgage rates; simply pay the bill and get on with your life.
But here’s an important point that is often overlooked: renting does not help you build your financial future. Meanwhile, homeowners increase their net worth simply by owning a home.
So, if you’ve been wondering if buying is still worthwhile, the long-term math is simpler than you might think.
Renting vs. Owning: How the Costs Actually Compare
Let’s look at one of the key differences between renting and buying. When you rent, your money goes to your landlord, and then it’s gone. When you own your home, part of your payment is returned to you in the form of equity (the wealth you accumulate as the value of your home rises and you pay down your mortgage).
So, while renting may seem more affordable now, you have to remember it comes at a long-term cost: you’re not building your wealth. And it turns out, that’s a bigger oversight than you might think.
First American recently analyzed the long-term financial impact of renting versus owning a home. They compared mortgage payments, property tax, insurance, repairs, and maintenance against the equity gained through home price appreciation and paying down the mortgage. And they did that during several different time frames to see if it tells a consistent story:
- 2006: the start of the housing bubble
- 2015: 10 years ago
- 2019: just before the pandemic (the last normal years in the market)
- 2022: when mortgage rates jumped
In both time periods, two things were true: renters lost money over time. And homeowners got it.
Here’s some data to see how this plays out. Each color represents one of the major time periods. The solid lines depict the buyer’s long-term investment and how their net worth increased as they lived in their home. The dashed line indicates the renter’s investment. In the end, they poured more and more money into renting without seeing any financial gain.
The takeaway is simple: time in a home builds wealth. Time renting doesn’t.
Basically, homeowners come out ahead. And the analysis shows that’s even after you factor in the other expenses that come with homeownership, like insurance, repairs, and property taxes. And that’s the case for every time frame First American looked into.
On the flip side, renters spent money on their rent, but didn’t gain any long-term financial benefit. That’s true no matter what window of time you look at in the study.
Now, that doesn’t mean buying always beats renting in the short term. But the longer you own, the wider the wealth gap becomes.
Affordability Is Starting To Improve
You may still be thinking, “Okay, but buying seems out of reach for me right now.” Fair.
The last few years have not been easy for buyers. But things are starting to change. Mortgage rates have dropped this year, home prices are falling, and incomes are rising. And, according to Zillow, average monthly payments have gotten a little easier since this time last year. Not by much, but enough to make a difference.
No, buying hasn’t become easier. However, things are easier now than they were a few months ago. In the long run, history shows that it is worthwhile.
Bottom Line
Renting may seem less expensive today, but owning is what creates true wealth over time. And, as affordability improves, the path to homeownership may become more accessible than you realize.
If you’re curious about what buying might look like for you, let’s talk. We can figure out your next steps without putting you under any pressure.