Last week, we did a blog story about the pros and cons of buying versus renting.
What made me think about this again was a conversation with a client who more or less suggested there is a stigma to renting, and that asking someone to rent for an extended period of time was like making them wear hair curlers to the grocery store or live in a double-wide.
Of course, that’s not at all how the client put it, but I think that’s a reasonable interpretation of what he really meant to say.
And in all fairness, I think he did put his finger on a deep-seated American cultural prejudice. It’s better to buy than rent, wealthier people don’t rent, and so forth.
Rethinking the American dream
And lo-and-behold, what did I just run across yesterday but a great article saying just that called “The Rentership Society.” Authored by Suzanne Wright, she argues that “the idea that owning your own home is the ultimate American dream is being turned inside out by a new way of thinking.”
Suzanne’s article could not be more on point. Here’s a quote:
“It used to be that the only folks who rented were low-income or bad-credit types with limited options. But not anymore. Since the housing bust in 2008, the renter population has swelled to 43 million households. … And surprise — that population includes successful professionals, families and retirees. … a combination of falling home prices, limited mortgage credit, continued liquidations and better rental options is fundamentally changing the way Americans live.”
Her observations could not be more timely.
If you are contemplating renting, whether temporarily or for a lengthier period of time, be sure to take a look at her thought-provoking article.
Suzanne makes several good points:
- Many renters are now renters by choice.
- Some of the neighborhoods and homes they are living in are nicer – and safer – than the ones they could buy in.
- Renting lets them try out different neighborhoods, cities and states, and gives them the flexibility to relocate without losing money.
- Renting lets you live without having lots of money tied up in a mortgage. That leaves people, says Wright, with the “freedom and flexibility to vacation frequently, relocate for a job, start a business or make other investment choices.”
- For many consumers, rentals give them the benefits of “having a private residence without the obligations — landscaping, HOAs, (and) maintenance — of ownership.”
Owning versus renting – the exceptions
Renting is increasingly seen as a potentially smart financial choice for some consumers, like millennials (born roughly 1980 to 2000), who have too much college and other debt to successfully navigate ownership of the homes they want.
One millennial interviewed by Wright explained it like this:
“We are both working, but the big drivers for us are repaying student loans. It’s hard enough to split our money into traditional savings and retirement, and throw in saving for a house. It was a conscious decision of where to focus our money in a way that makes the most sense for us right now.”
Ken H. Johnson, a real estate expert at Florida International University interviewed by Wright, thinks most people – but not all – should own rather than rent.
But he singles out two exceptions. One exception is good savers who can create more wealth by putting their money into other (non-real estate) investments. The second exception is again millennials.
“Why millennials? Because millennials move a lot to maximize their income through better jobs, and they lose wealth through the transaction costs associated with home buying.”
The Takeaway: Buying a home may no longer be the American dream for every person, even those with the means to do so. As with all important decisions, prioritize your financial goals and focus your energy and resources on the ones that really matter.