Considering home prices are 50% higher than pre-pandemic, mortgage rates remain high in the 6% range, and everything feels more expensive due to inflation and tariffs, homeownership is essentially out of reach for many young Americans.
But one serial investor says choosing to rent rather than own a home might not be as bad as some think, despite it being the quintessential American dream.
“If your goal is to become financially independent at a young age, you probably don’t want to buy a house – but that’s a very controversial statement,” JL Collins told Diary of a CEO Podcasts at episode Published January 12th.
Collins, best-selling author Pathfinder and The easy way to wealthsaid the reason is simple: buying a house will “dramatically increase” your cost of living. While your mortgage payment and rent payment may be similar on paper, owning a home ends up costing more in the long run and comes with unexpected expenses — often referred to as the “hidden costs” of homeownership, such as insurance, repairs and updates.
“You need to maintain it, pay taxes and so on, and so on,” he said. “If you live in an apartment that’s adequate for your needs — which, by the way, is what my daughter did and continues to do — your costs will be lower.”
In fact, a LendingTree Research Data also released this week showed that renting is cheaper than buying in major U.S. cities, with U.S. homeowners paying 36.9% more on their monthly mortgage payments than renters. By 2024, the median gross monthly rent will be $1,487, while the median monthly housing cost for homeowners with a mortgage will be $2,035, according to LendingTree. Owning a home costs nearly $550 more per month, which equates to a difference of more than $6,500 per year.
Collins believes this cost difference makes buying a home another “expensive indulgence.”
“People typically buy the most they can afford. The industry drives them to do that,” Collins said. “You’re going to end up with a house that’s going to be a burden. You’re not buying it out of strength. You’re buying it with all your might. You’re borrowing the most the bank is willing to give you.”
To be sure, Collins would understand the cost of owning a home — he said he has owned one most of his adult life. In addition to the mortgage, homeowners should also pay for furnishings, new appliances, landscaping, taxes and maintenance.
“The list is endless,” he said. “Your mortgage is just the starting point.”
Matt Schultz, chief consumer finance analyst at LendingTree, said in a statement wealth He knows the numbers can be discouraging to those hoping to own homes.
“Some people have accepted that they will never own a home,” he said. “Such a decision would have huge consequences not just for individuals but for the economy as a whole. Unfortunately, however, it seems unlikely that this situation will change anytime soon.”
This is consistent with what other housing market experts and economists are predicting for this year’s housing market. While mortgage rates may drop slightly, the hidden costs of homeownership remain, and home prices won’t drop enough to have a significant impact.
According to data shared by Realtor.com wealthat least one of three things needs to happen to make it more affordable for ordinary people to buy a home in the United States: mortgage rates need to drop to 2.65%; median household income needs to increase by 56%; otherwise home prices need to drop by 35%. None of these scenarios are likely to happen.
“We’re in a tough spot,” Max Slyusarchuk, CEO A&D Mortgagesaid before wealth.. “What happens when you make progress on any of these factors? More people are in the market to buy and sell homes, which in turn increases demand, which drives up prices.”