Updated: Feb 25
Money.com - February 7, 2020
Owning a home may still be a financial goal for upper-middle class Americans. But more and more of them are lingering in the ranks of renters.
More than 10.2 million American households earning more than $75,000 were renters in 2018, that’s up by nearly a third from 7.1 million in 2010, according to a study released last week by Harvard University’s Joint Center for Housing Studies. Those well-to-do Americans accounted for three-fourths of the overall growth in the population of U.S. renters.
“Many people that are typically thought of as potential first-time homebuyers—higher income, highly educated young and middle-aged adults—are increasingly likely to be renters,” says Alexander Hermann, a Research Analyst at the Joint Center for Housing Studies.
The high rent trap
There’s a few issues at play here, the first one being that the rent keeps rising, for nearly everyone. “The low-cost rental stock has declined dramatically in a short period of time,” says Hermann. “The share of rental units across the country renting for under $600 after adjusting for inflation declined from 33 percent of the market in 2012 to 25 percent in 2017.”
That may sound like an incentive to buy a home. The problem is that paying more money toward rent also makes it harder to save up for a down payment on a home, the difficult first step in any home purchase. With the median US home now costing about $240,000, the traditional 20% down payment amounts to nearly $50,000, although it is possible to buy a home putting down a lot less.
And saving money for a house becomes even more difficult if one has significant student-loan debt, which according to Business Insider , accounts for 45% of millennials, who are renting longer and buying later, if at all.
Long-term wealth affects
Owning a home remains a key way for Americans to build wealth. But if you’re stuck with renting for a while, don’t be too discouraged.
As reported by MarketWatch, a survey compiled by Florida Atlantic University, Florida International University and the University of Wyoming shows that renting does provide its own opportunity to generate wealth, as long as you’re disciplined. Rather than getting their money tied up in a large mortgage payment, if a household can find a rental property that doesn’t take up too much of its monthly income (which is not always easy, depending on where one lives) and then puts that unused wealth into the stock market in the form of stocks and treasury bonds, they can make up the difference in the end.
So don’t think of renting as throwing money away. Instead, view it as an opportunity to invest more.
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