Owning a home is the benchmark of success, a milestone of responsible adulthood, a time-tested way to amass wealth for you and your progeny. Home ownership, we\u2019re told again and again, is a status that every right-thinking person should aspire to \u2014 the white-picket-fence-fronted embodiment of the American Dream.<\/p>\n
But what if it\u2019s also a little overrated?<\/p>\n
For generations it has been taken as a near article of faith across the country that ownership is both the financially and socially superior<\/a> way to inhabit a home and that public policy makers should always promote it. California legislators and housing advocates spent this past year enacting sweeping<\/a> policies<\/a> aimed at making it easier to build housing of all kinds. This coming year, many of them indicate that they plan to focus specifically on providing more plentiful paths to homeownership.<\/p>\n They\u2019ll have their work cut out for them.<\/p>\n The state\u2019s homeownership rate of roughly 55%<\/a> is second lowest in the nation, above New York, and a full 10 percentage points beneath the national average<\/a>. Most of that gap, both common sense and researchers at UC Berkeley<\/a> tell us, isn\u2019t the result of an atypical fondness for the freedoms of renting but comes down to the price tag. The median price of a detached single-family home across in the United States is $426,800<\/a>. In California, it\u2019s $852,680<\/a>. In San Francisco it\u2019s well over $1 million.<\/p>\n With borrowing rates still hovering above 6%<\/a>, those prices translate to estimated monthly mortgage costs between $4,000 to $6,000 or more. Even in all but the toniest neighborhoods of coastal California, that\u2019s far above the cost of renting a typical apartment. Is the extra cost worth it?<\/p>\n Economists and housing finance experts are careful to note that it depends \u2014 on a person\u2019s financial circumstances, the particulars of their preferences and the market in which they want to live, how long they plan to occupy a home and, most challenging of all, what the future holds.<\/p>\n But across the country, the gap between renting and owning is \u201cway out of line\u201d with the historic norm, said Laurie Goodman, an economist at the Urban Institute, a liberal-leaning thinktank in Washington D.C.<\/p>\n In 2018, Goodman co-authored a paper<\/a> on homeownership in the United States, which came to the fairly unambiguous conclusion that most people most of the time would be better off buying a home (assuming they can afford the monthly payments) compared to renting.<\/p>\n \u201cHomeownership is not the universal panacea, but the financial returns on homeownership have been more beneficial than renting for most homeowners and will likely remain so if current patterns continue,\u201d Goodman wrote in a corresponding blog post<\/a> at the time.<\/p>\n Current patterns did not continue: Today we see dizzying prices and interest rates and flat rents in most places. Homeownership isn\u2019t nearly the financial slam dunk it once was, she said.<\/p>\n Take a market like San Francisco. The average price of an admittedly rare single-family home in the city is $1.38 million, according to Zillow<\/a>. Depending on the size of a buyer\u2019s downpayment, that would work out to a monthly loan payment of roughly $6,500. The average rent<\/a> for one is $4,350.<\/p>\n In order for all those extra monthly payments to eventually pay off, the value of the house will need to soar vertiginously into the indefinite future. Or rents, which determine how much a person can save by not buying, will need to shoot up as well. Or the stock market or other possible places a well-heeled renter could park all the extra money they aren\u2019t spending on a mortgage, will need to flatline.<\/p>\n Or a combination of all of the above.<\/p>\n A person buying into that market is assuming a very specific and by no means certain version of the financial future, said Goodman.<\/p>\n Either that, or they\u2019re just \u201cdesperate to own in San Francisco because they\u2019re just desperate to own in San Francisco,\u201d she said. \u201cFor whatever reason.\u201d<\/p>\n The case for renting forever<\/p>\n For many Californians, this isn\u2019t actually a decision. The number of renters who can buy locally and get away with spending anything less than 40% of their income on monthly homeownership costs are in the single digit percentages in Los Angeles, San Diego, Riverside, Sacramento, San Jose and Ventura, according to the CBRE report<\/a>. Being a tenant in California is hard enough. More than half of California renters are spending more than 30%<\/a> of their income on rent as it is.<\/p>\n But for those lucky enough to rent by choice, it\u2019s not necessarily a bad choice to make.<\/p>\n Remember that yawning \u201cbuying premium\u201d between the monthly cost of owning and renting? A wealthy tenant is in a position to save and invest the difference. Though homeownership is often touted as the best way to build wealth, it\u2019s not the only way. It might not even be the best way: On average and over long stretches of time, the stock market regularly outperforms median home prices \u2014 albeit, without quite so many tax benefits<\/a> and other boosts<\/a> that federal and state governments shower upon homeowners.<\/p>\n Rather than pouring every last dollar in disposable income (and then some) into a single depreciating asset that threatens to leak when it rains, parking that money elsewhere also allows a renter the option to diversify.<\/p>\n \u201cI think more people are starting to be interested in renting and saving at the same time, because they\u2019ve been priced out of owning a home, but they still want to achieve their financial goals and they\u2019re looking into those alternatives and getting more savvy about it,\u201d said Redfin economist Daryl Fairweather.<\/p>\n Running the numbers on whether renting and saving is, in fact, the better financial call gets very \u201cmurky,\u201d she said. Much of it depends on the future of home prices, local rents, stock prices, interest rates and how long a person plans to stay put. It\u2019s a hugely complex and individual choice and it\u2019s not risk-free. Fairweather touted an online rent-vs-buy calculator<\/a> produced by the New York Times.<\/p>\n But California\u2019s specific conditions \u2014 high prices relative to rents, high maintenance<\/a> and insurance costs<\/a>, the relatively large number of tenants protected by rent control policies of one kind or another<\/a> \u2014 the financial argument for renting may be about as good as it\u2019s ever been.<\/p>\n The perks of owning property<\/p>\n Even if renting is a better deal on paper, there are plenty of reasons someone might want to buy that have nothing to do with money.<\/p>\n Space is one: For a host of regulatory<\/a> and financial<\/a> reasons, the vast majority of rental units are apartments while detached single-family houses are predominantly reserved for owners. Especially for growing families, the option is often either to cram your spouse and kids into an urban apartment or drive out of the city (and possibly out of the state) until you can afford to buy.<\/p>\n
In Orange County, the estimated all-in monthly costs on a home (including taxes, insurance, maintenance and any association fees) is four times the average rent, according to a recent analysis<\/a> by the commercial real estate firm CBRE. In Los Angeles and San Francisco, the \u201cbuying premium\u201d is three times greater than renting. Nationally, it\u2019s twice as much.<\/p>\n