More American households are renting, across all income levels and generations, for different reasons. But when homeownership is the centerpiece of the American dream, most of us have internalized certain ideals: Buying a home builds equity, putting you on the fast track to building wealth. Renting, by contrast, is essentially throwing money to the wind.
But with renters now accounting for 37 percent of all households, the highest level since the mid-1960s, according to the Joint Center for Housing Studies of Harvard University, more people may be renting for longer. Does that mean people who rent for extended periods, perhaps decades — even a lifetime — are forever at a disadvantage?
“Arguing about whether rent versus buy is a better financial decision is like debating active versus passive investment strategies, hedge funds versus mutual funds, Apple versus Google,” said Milo M. Benningfield, a financial planner in San Francisco. “Somebody’s going to be right in terms of higher returns in the future, but we can’t know in advance who that will be — and it will be tough to quantify how much risk was taken along the way.”
The arguments in favor of ownership are persuasive, particularly for people who expect to stay in place for at least five to seven years but probably more. A mortgage acts like a forced savings plan, even if you’re paying the bank hundreds of thousands of dollars in interest for the privilege of building equity. Call it the cost of enforcing a positive behavior.
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