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Renting Vs. Owning a Home: What Makes the Most Sense for Millennials?
Millennials are a dominant force in the housing market these days, and why not? After all, 75 million Americans are in the millennial generation. In other words, they are a quarter of the population, just short of a third of the voting demographic, and nearly 40 percent of the working population. It makes perfect sense that they would be the current group looking for a place to call home.
One natural question that arises, then, is why so many millennials are still choosing to rent over owning their own house. According to the U.S. census, a paltry 35 percent of millennials own their own homes. Over 40 percent of baby boomers, in comparison, owned their houses at the same age. Not only that, but the millennial house-owning numbers are the lowest recorded since 1982.
So what’s the holdup? Why are millennials unable to buy their own homes? Or are they even trying? Let’s take a closer look at where millennials are choosing to live and what factors are driving the decision.
According to Bankrate, even though the costs of renting versus buying are often close to equal, millennials aren’t committing to home ownership in the same numbers as past generations. The disparity may seem to be a bit puzzling until one takes the larger picture into consideration.
While the cost of renting may technically be the same as owning, the truth is, the latter tends to come with a lot of extra costs that simply aren’t a factor when renting a home. Things like maintenance, taxes, insurance, and costly emergency home repairs like flooding aren’t a concern for millennials who rent, as landlords take care of the heavy lifting for them.
Of course, the obvious counter to the renting argument, and one that has always kept home ownership in the cards is the fact that renters walk away with precisely zero equity no matter how long they live in a rented space. Homeowners, on the other hand, accrue equity with every mortgage payment. Nevertheless, the emotional decision to avoid the responsibility of homeownership over the benefits of equity tends to line up with many of the financial literacy issues that millennials often tend to struggle with.
Of course, the costs and benefits of owning a home aren’t the only factors at play here. Many millennials are postponing their nuptials as well as holding off on having children, putting the need to settle down in a family home on the backburner.
Before we go any further, we should address one more option that a large number of millennials are needing to take over renting and owning: living with their parents. While it’s clearly not a long term solution, the reasons behind it are helpful in revealing the challenges that millennials are trying to navigate when it comes to whether to rent or own.
As of mid-2018, Forbes reported that one out of every four millennials still lived with their parents, often moving back in after they had finished college, or at other points in their 20s to even mid-30s. Why are so many men and women from Generation Y holing up with Mom and Dad? The report gave two short and simple answers: housing costs and student loan debt, while a third answer could easily be added as well — stagnant wages.
The truth is, millennials are being pinched from multiple sides. While they may aspire to own their own homes, or at the least move into their own rental units, the costs of even a small rental are becoming prohibitive with the median rent for a 1-bedroom apartment in the U.S. topping $1,200 per month as early as late 2017.
Add onto that the fact that students leave college strapped with student debts that can often be larger than a mortgage payment. And then there’s the pièce de résistance: According to Pew Research, when adjusted for inflation, the purchasing power of an average American paycheck has hardly budged in the last 40 years. With higher costs and the same amount of money to work with, millennials are simply struggling to make ends meet.
All things considered, the answer to whether a millennial should rent or own simply isn’t as formulaic as one might want it to be. There are numerous factors to consider, from wage stagnation and student debt to the desire to postpone marriage and a family, or even just avoid the responsibilities of homeownership. However, there are a few things that millennial homeowners are managing to work in their favor.
Just because you own a house doesn’t mean you need to necessarily have your own pool or gym. In fact, according to a Zillow analysis of 13,000 homeowners, 54 percent of millennials purchased homes with shared amenities. They also tended to skip over the traditional “starter home” route, opting straight for pricier, already established houses that tended to average around $217,000.
In other words, many millennials, once they had purchased a home, managed to bring many of the rental perks right along with them, from an updated home to the shared amenities that are the norm for most apartment complexes.
For millennials who are currently renting and are itching to make the switch, if you’re feeling that financial pinch, there are many different ways to start saving up your money in order to break free from that struggling middle-class mentality.
For example, plan your grocery trips out, shop in bulk where you can, and try to avoid eating out as often as possible. Try to consolidate your debt — especially the high-interest debt, and lower your insurance premiums wherever possible. Finally, try to hook up a high-interest savings account where you can stash your extra cash when you have any.
There are endless ways to trim up your budget and start moving in the direction of a healthier financial lifestyle that will enable you to finally make that jump from an apartment to a house — if that’s what you’re angling for, of course.
However, if you simply prefer to rent, you’re not alone. As with so many other things, millennials truly are rewriting the playbook when it comes to the housing market. They’re demonstrating that renting isn’t necessarily a sign of failure and that a happy, healthy home can be found in an apartment as much as a fancy condo or a trendy new house in the suburbs. At the end of the day, the only question that really must be asked is, “what works best for you?”
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This article was produced and syndicated by Wealth of Geeks.
Josh founded Money Buffalo in 2015 to help people get out of debt and make smart financial decisions. He is currently a full-time personal finance writer with work featured in Forbes Advisor, Fox Business, and Credible.