Rent versus buy: How did you choose your home?
A 'For Rent' sign stands in front of a house on May 31, 2011 in Chicago, Illinois.
According to Trulia's Rent vs. Buy Report, an online real estate site, buying a home is 38% cheaper than renting. But that varies widely depending on location, "buying ranges from being just 5% cheaper than renting in Honolulu to being 66% cheaper than renting in Detroit."
Housing prices and interests rates are slowly beginning to creep up, and residential construction is predicted to increase 10% to 15% through 2014. But despite the relative affordability of buying a home, more and more Americans are choosing to forego the mortgage.
And that means more renters.
That's a trend home-builders are noticing. According to the Wall Street Journal, the percentage of new homes being built as apartments is at its highest level in 40 years. And Millennials are essential to this trend.
Nick Retsinas, Director Emeritus, Joint Center for Housing Studies at Harvard says that the numbers are telling.
"Clearly, we are starting to see growth in the number of households, and for a period of time we did not when young adults were staying with their parents," Retsinas says. "But now, they’re starting to move up, and when they look at what the options are, for some renting is a good option for lots and lots of good reasons. On the other hand, for some who wanted to buy a home, they find that access to credit is more difficult than it once was."
A recovering economy offers some explanation as to why some are choosing to rent instead of purchasing a home, but Retsinas says that there are more tangible issues that affect a person’s decision to buy.
"Looking at owning versus renting, there are a number of factors involved and interest rates are just one of them, but not the only one. There’s an expectation of what future appreciation may be, or what house price decline might be."
Home ownership has long been a pillar of the American Dream. As the generation that values access over ownership though, Millennials may have created a permanent change in the Dream's definition.
And Retsinas says that there is nothing wrong with renting indefinitely.
"One of the problems in the past is we demonized renting. It’s as if only if you were dumb, only if you weren’t smart, only if you weren’t hard working, only if you’re weren’t entrepreneurial. Otherwise, you would own a home. I think now we realize for many people that renting is a better financial option overall. And certainly in the kind of market we are, for young people, it gives people more mobility options than they would have before."
Featured in: Marketplace Money for Friday, March 14, 2014