American Dream May Not Be to Buy a Home, but to Rent One: Report

A 'For Rent' sign stands outside a single-family home on the market in Denver on Feb. 10, 2024. (AP/David Zalubowski, File)

Twenty years ago, President George W. Bush, to encourage home purchases, said: “We can put light where there’s darkness and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home.” Some believe that encouragement fueled the home mortgage madness that ignited the Great Recession. But many financial observers looking at the real estate market today are showing cooler heads, believing that home ownership may not be the best economic decision.

New research from global commercial real estate services and investment company CBRE shows that the American Dream of buying a home might not be the best economic decision in 2024, with mortgage payments projected to exceed rental costs for at least the next five years.

The analysis found that the average monthly payment on a new apartment lease in the United States is $2,165. The average monthly payment on a mortgage for a new home is $2,997, meaning that households pay an average of 38 percent more to buy than to rent.

What Happened to the American Dream of Home Ownership?

“It is no doubt that the American Dream is further beyond reach, especially for first-time homebuyers with little cash. Monthly mortgage payments outweighed rent at a record level because of both record housing prices and 7 percent-plus mortgage rates by the end of 2023,” Moody Analytics economist Mary Le said in a statement sent to The Epoch Times.

“As market participants readjust their expectation for the near-term mortgage rate and the Federal Reserve starts to lower the benchmark interest rate, we may start to see more single-family listings and transactions.”

According to the CBRE study, people renting in 2024 may be paying monthly checks to their landlords for the foreseeable future. “Even though the premium to buy a home may come down over the next several years based on home-price, interest-rate and rent-growth forecasts, it is expected to remain high enough to keep today’s renters renting for longer,” the study stated.

The disparity between mortgage payments and rental costs is the biggest hill to climb for prospective homeowners, according to CBRE Americas Head of Multifamily Research Matt Vance. “The sharp increase in the cost of buying a home has made it increasingly difficult for individuals and families to make the transition from renting to owning.”

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Sarah Mizell, a financial adviser with Houston-based Cove Wealth Management, told The Epoch Times that pursuing home ownership in the current economic climate may not be the wisest decision and may actually be an opportunity for some to get their financial house in order.

“What I hope people understand is that simply owning a home, especially extending your personal finances, is not the freedom that most people are hoping to achieve,” she said. “The current prices for so many people have pushed homeownership to that stretch of being an unattainable level.

“I hope the American people are sitting back and seeing renting as a way to have personal flexibility. It’s a good time to get your personal finances in a place where you can rearrange your finances. However, do I think that’s what’s happening right now? I don’t think so.”

One of the financial conundrums in the market today is that not only are home values continuing to increase with a lack of inventory but rents are also continuing to climb. According to the CBRE study, rents are expected to increase by another 2.8 percent over the next five years, and elevated mortgage rates are expected to contribute to homeowners staying put for a longer duration. The company also estimates a shortage of 3.8 million predominantly single-family homes, accounting for 90 percent of the housing inventory, through at least 2029.

The 30 Percent Rule

Some are also wondering if the high prices are eroding the age-old financial advice that rent or mortgage payments shouldn’t exceed 30 percent of your gross income.

“The cost of housing being at or below 30 percent of income was initially a standard used to provide rental assistance for lower-income households. The threshold increased from 20 percent in the 1940s to 25 percent in 1969 before reaching 30 percent in 1981,” Ms. Le wrote.

“Although we should always consider the flexibility of adjusting the standard, it also provides stability of policy. Even short-term inflation on non-discretionary spending can fluctuate and significantly affect households, especially at the bottom of the income distribution.”

But has that number ever reflected the reality of changing economic cycles and additional home ownership costs, such as insurance and homeowners association (HOA) fees? Ms. Mizell says “No.”

“From a [certified financial planner] model, they still would recommend 28 percent or less of gross income. I recommend 25 [percent to] 30 percent for most people, considering [principal, interest, taxes, and insurance] and HOA and condo association fees,” she said.

“Sometimes there’s a [perceived] good investment that’s not a good investment for you, and that’s so important when it comes to housing. Your house is a place to live and enjoy and have people over and a place to exist and rest. Overextending does not create that environment.”