Early in my divorce, I found myself uncertain about purchasing a home and whether it was financially wise. I analyzed both renting and buying to gauge how my monthly expenses would pan out and what my overall financial situation might look like in a few years.
With a teenage son and a preteen daughter, I needed at least three bedrooms, which greatly limited my options, especially in the rental market. Upfront, buying a home appeared pricier than renting. For a home priced at around $180,000, I would need approximately $36,000 for a down payment, plus a few thousand more for closing costs. On the other hand, renting a three-bedroom space would require the first month’s rent, last month’s rent, and a security deposit — adding up to around $4,500 upfront, with rentals starting at $1,500 per month.
However, the monthly costs painted a different picture. Renting would cost me about 50% more than owning. A mortgage on that $180,000 home, with 20% down, would result in a monthly payment of only $1,040, including property taxes and homeowner’s insurance, compared to $1,500 for renting.
Some analyses argue that renting is cheaper when you consider the ongoing costs of home ownership. I disagree for two main reasons. First, a portion of my mortgage contributes to the principal, building equity that I could recoup upon selling the home. The longer I stay, the more my equity grows due to amortization. Conversely, every cent spent on rent goes to someone else — I never see a single dollar of that back.
Secondly, these analyses often overlook the potential returns after several years of home ownership and the profits from selling a home. Home ownership is one of the most dependable methods for wealth accumulation, akin to a savings account that accrues interest. Renting presents a significant opportunity cost, especially as rent prices rise.
If buying becomes unattainable, many find themselves trapped in a cycle of renting. The reality is that securing any form of housing has become increasingly costly. I realized that if I hadn’t been able to afford a down payment, I could have easily remained stuck in a perpetual renting trap. With escalating rent, there would be little left at the end of each month to save. This predicament affects countless Americans, hindering their upward mobility typically associated with home ownership.
The prevailing narrative suggests that young individuals can rent affordably while saving for a down payment to purchase a home, embodying the American dream. But how can this be achieved if all potential savings are consumed by exorbitant rent? Adding children to the equation creates further challenges in saving.
With my income, if I had been forced to rent, I’d have struggled to save even a few hundred dollars a month, making it a 15-year endeavor to gather enough for a down payment — assuming I could even keep pace with rising home prices. In just two years, prices have soared, meaning I’d need nearly $6,000 more for a down payment than I would have two years ago, in addition to an increased monthly mortgage payment.
It’s hard to understand how anyone is expected to save for that 20% down payment when renting typically costs 50% more than owning. The rental market’s inflated prices diminish any chance of saving. Moreover, the trend of investors purchasing properties to rent out — often for short stays via platforms like Airbnb — further exacerbates the issue. They outbid first-time buyers, driving up prices and removing affordable options from the market, thus widening the wealth gap.
Rising housing costs mean that without financial support, many are trapped in a cycle of struggling to pay rent, let alone save for a home. My ex-husband and I managed to buy our first home in 2008 thanks to a year living rent-free with a generous cousin, allowing us to save $25,000. That year laid the foundation for our financial growth. Many Americans lack such support.
This issue deserves more attention. Housing is a fundamental human need, and as we grapple with soaring healthcare costs and educational inequities, millions are being priced out of basic shelter.
For those interested in fertility and parenting, check out this informative piece on home insemination or visit Make a Mom for expert insights on home insemination. Additionally, NICHD is an excellent resource for pregnancy-related information.
Summary:
The struggle to build wealth through home ownership is increasingly difficult for many, particularly those trapped in the cycle of renting. As rent prices continue to soar, potential savings diminish, making it nearly impossible to accumulate enough for a down payment. This situation affects countless Americans, limiting their financial mobility and widening the wealth gap.