Rich young Americans are giving up the dream of homeownership as mortgage rates and housing costs reach new highs — which is why more of them are choosing to rent

‘Hard to stomach’: Rich young Americans are giving up on the dream of homeownership as mortgage rates and housing costs reach new highs — here’s why more of them are choosing to rent

Home prices in the United States have become so expensive that even wealthy young Americans have given up on the dream of homeownership… for now.

The average monthly mortgage payment on a new home is now 52% higher than the average apartment rent, according to a report by The Wall Street Journal (WSJ), based on data from real estate firm CBRE.

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Rising mortgage rates and other housing costs are causing some high-income millennials and Generation Z to reconsider their timeline for the old American dream of homeownership.

“Look at any major city, look at the stagnant minimum wage, look at the rising housing costs and also the rising rent – ​​it’s not easy to live anywhere right now,” Tori Dunlap told Moneywise.

The founder of financial education platform Her First 100K and high-income renter is based in Seattle — where the median home price was $829,000 in September, according to data.

She says it’s “hard to afford” spending hundreds of thousands of dollars on “a house that’s too small.” That’s why the number of wealthy young American renters is increasing.

Is rent cheaper?

High mortgage rates are preventing young Americans from getting on the housing ladder. In October, the average interest rate on a 30-year fixed mortgage reached 8% for the first time in nearly two decades.

On top of these high borrowing costs, home prices are so high today that potential buyers need an annual income of only about $115,000 to afford a median-priced home in the United States. This is about $40,000 more than the average family earns.

The Wall Street Journal found that someone who takes out a new 30-year mortgage to buy a $430,000 home, with a 10% down payment, would have to pay $3,200 per month — a shocking 60% more than if they had bought The exact same house from three years ago. Years ago.

Apartment rents rose by only 22% during the same period. The national average rent is currently $1,353 per month, according to November rental market data from Apartment List.

On average, apartments across the country are a little cheaper now than they were one year ago, but the average rent is still about $250 a month higher than it was just three years ago.

“It’s very hard to know what to do when you have someone saying, ‘Oh, you need to buy,’ but at the same time, you’re saying, ‘I don’t know how I could be.'” Dunlap says. that”.

These dynamics pose serious financial challenges for young Americans, even for those who technically earn enough money to buy their first home.

Rich people who rent

According to a 2023 RentCafe report that used the most recent Census data, the share of renters earning more than $150,000 swelled 82% from 2015 to 2020 — the most significant increase among all income brackets during that period. This is due to rising house prices and opportunities for greater flexibility and smart investment.

For Dunlap’s part, she began her career in her early twenties, to the point that her “well-meaning parents” encouraged her to buy property at the age of twenty-two, because they believed “renting was a waste of money.”

The only property she could afford at the time was a small apartment located an hour outside of Seattle and a good distance from her friends. She made an offer but backed out at the eleventh hour, a move she now describes as “one of the best decisions I ever made.”

“I wasn’t emotionally ready to be a homeowner,” she says, now 29. “I wasn’t where I was living…I was 22, and I wanted to be in a city, and I wanted to spend time with my friends.” I wanted to do things, and I didn’t want to stay home on weekends.

Read more: Thanks to Jeff Bezos, you can now use $100 to cash in on prime real estate — without the headache of being a landlord. Here’s how

More importantly, Dunlap believes she may not have built her financial education platform, “her first $100,000,” in the same way she bought that apartment. She now uses this work to help other young Americans understand that “sometimes the mathematically sound financial decision isn’t the one you should actually make.”

For Dunlap, there are some “luxuries” in renting that are eliminated with the hassles of homeownership. She likes “being able to contact the owner when something breaks down or something happens.” But most of all, she loves the financial freedom she has maintained by not investing a large portion of her money in real estate.

“As a financial expert, I keep getting the question: Why don’t you buy a house? That sounds so stupid. Why rent? For me personally, I use the money so I can rent,” she says. “Other people might use the money so they can buy a house or buy real estate.” For Rent”.

“When you have money, you have the option to rent (which is not a forced option) and you have the option to buy a home. It’s not about you having to rent because you can’t own a home.

What about real estate as an investment?

Dunlap is by no means anti-homeownership. She’s certainly not in the same camp as prolific real estate investor Grant Cardone, who says buying a home is a “fantasy,” a “trap” and a “terrible investment.”

She’s even more in tune with fellow personal finance mogul Ramit Sethi — a millionaire who rents because it “fits the season of his life.”

And he’s not the only one. According to a RentCafe report, the number of millionaire renters in the US has tripled over the same five-year period, with 36% of this seven-figure club belonging to Generation Z and millennials.

Wealthy young renters are more interested in building a strong financial platform – through prudent money management and strategic investing – before making the biggest financial commitment of their lives.

“This can be a great tool for building wealth,” Dunlap points out — but only if homeownership is what you really want, you’re willing to take responsibility and the accounts are verified.

If you’re not quite in this situation – either you don’t have the financial resources to buy, or you don’t want to deal with owning and managing a property – there are simpler ways to invest in real estate, including online platforms that will allow you to start with as little as $100. dollar.

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This article provides information only and should not be construed as advice. They are provided without warranty of any kind.

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