I was talking to a friend of mine recently who was bemoaning the fact that she and her partner would, by her estimates, never be able to own a home. She pointed to sky-high property values and mortgage rates as primary reasons why homeownership seems perpetually unattainable, so I reminded her that today's housing market conditions are really only temporary.
This isn't to say that home prices will fall and mortgage lenders will lower their rates in a year or two. Rather, today's real estate market conditions might persist for a number of years.
But my friend is only in her late 30s, and her partner is around the same age. So owning a home might eventually be in the cards for them -- if they decide they actually want to go that route.
See, I have a sneaking suspicion that my friend isn't really eager to own a home, but rather, feels like it's the financially sound thing to do. And even though I own a home, I'm here to tell you that this line of thinking is horrendously skewed.
You can be financially secure as a renter
Around 66% of Americans own their own homes, according to recent Census Bureau data. And it's easy to see why the idea of homeownership is appealing from a financial perspective.
As you pay down your mortgage, you get to build equity in an asset that you can eventually own outright. For many retirees, their home is their greatest source of wealth. You might have someone in their 60s with a $100,000 IRA and a $750,000 home they own outright.
When you rent, you don't eventually get to own a home. So you'll often hear that renting is throwing your money away.
Except it's not. Just as you're not wasting money when you buy medication that keeps you healthy or food that keeps you nourished, so too are you not wasting money by paying rent because you're fulfilling an essential need -- housing. And if you pay your rent while also managing to save money month after month, you can build yourself a nice emergency fund and nest egg to gain the financial security you need.
Renting might even be a more financially sound choice
It's true that when you rent a home, you don't get to eventually own it. But you know what you might get to own instead? A $100,000 savings account balance, or a $500,000 IRA.
When you rent a home, your monthly housing costs are fixed and predictable during the term of your lease. And if your rent increases, you can always move to a new rental. (And yes, there can be a cost involved, but there are also many steps that can be taken to make a move relatively affordable.)
Meanwhile, when you own a home, there's nothing to stop you from having to shell out $10,000 on a whim to get a new air conditioning system, or from having to spend $20,000 on a new septic system. Owning a home means grappling with ongoing financial surprises -- expenses that can limit your ability to save in a very big way.
So if you're of the impression that homeownership isn't in the cards for you, or you just plain don't want it to be in the cards, don't worry about it. You're not in any way doomed to financial failure because you intend to rent for the rest of your life. Quite the contrary -- renting could set you up to meet your financial goals with ease because you're not constantly spending extra money just to keep a property standing.
