Wealthy young Americans are abandoning their dreams of homeownership as mortgage rates and housing costs reach new highs. This is why more people are choosing to rent.

U.S. home prices have become so exorbitant that even wealthy young Americans are abandoning their dreams of homeownership for now.

The average monthly mortgage payment for a new home is now 52% higher than the average rent for an apartment, according to a Wall Street Journal report 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 Gen Zers to reconsider their timetable for the long-held American dream of homeownership.

“If you look at the major cities, you look at the stagnation of the minimum wage, housing costs are going up, rents are going up. It's not easy to live anywhere right now,” Tori Dunlap said. told Moneywise earlier this year.

The founder of the financial education platform Her First $100K and a high-income renter is based in Seattle, where the median home price is 9, according to Realtor.com data. As of May, it was as low as $829,000.

Spending hundreds of thousands of dollars on a “very small house” is “hard to bear,” she says. This is why the number of wealthy young renters in America is increasing.

Is it cheaper to rent?

Rising 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 about 20 years.

In addition to these exorbitant borrowing costs, today's home prices are so high that prospective buyers need an annual income of nearly $115,000 just to buy the median-priced home in the United States. That's nearly $40,000 more than the average household income.

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WSJ calculated that someone who takes out a new 30-year mortgage on a $430,000 home with a 10% down payment would have to pay $3,200 a month. This is a shocking 60% more expensive than buying the same house three times. years ago.

Apartment rents have only increased by 22% over the same period. The national median rent as of Oct. 30 is $1,354 per month, according to the latest rental market data from Apartment List.

On average, apartments across the country are slightly cheaper now than they were a year ago, but the median rent is still about $250 a month more expensive than just three years ago.

“It's really hard to know what to do when someone says to you, 'Oh, I have to buy this,' but at the same time, you're also like, 'I don't understand why it's happening to me.' We can do that,” Dunlap said.

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

wealthy people who rent

The 2023 RentCafe report, using the latest Census data, shows that the percentage of renters with incomes of $150,000 or more increased by 82% from 2015 to 2020, the most significant increase of any income group during this period. There was an increase. This can be attributed to rising house prices and more flexible and smart investment opportunities.

Dunlap's career took off in his early 20s, and his “well-meaning parents” encouraged him to buy real estate at age 22, believing that “renting was throwing money away.”

At the time, the only property she could afford was a small condo about an hour outside of Seattle and close enough to her friends. She made an offer, but at the 11th hour she withdrew. She now calls this decision “one of the best decisions I've ever made.”

“I wasn't ready to be a homeowner,” said the now 29-year-old. “I wasn't where I was in my life…I was 22 years old, I wanted to be in the city, I wanted to hang out with friends,” I wanted to do something, but I spent the weekend lounging around at home. I didn't want to. ”

read more: As U.S. home prices slump, ultra-wealthy Americans are snatching up prime real estate overseas, but here's a smart way to invest without moving abroad.

Importantly, Dunlap believes he might not have been able to build his financial education platform, Her First $100K, in the same way had he bought that condo. And now, she's using that business to help other young Americans understand that “the financial decisions that are mathematically sound may not be the decisions you should actually make.”

For Dunlop, renting has some “luxuries” that are lost with the hassles of owning a home. She likes “being able to call the landlord if something breaks or something happens.” But most of all, she likes the financial freedom she can maintain by not locking up most of her money in real estate.

“As a financial professional, I still say, “Why don't you buy a house?'' That seems pretty stupid. “Some people may use the money to buy a house or buy a rental property,” she says.

“If you have the money, you have the option of renting (it's not a forced choice), or you have the option of buying a home. Just because you can't own a home doesn't mean you have to rent.”

What about real estate as an investment?

Dunlop is in no way opposed to home ownership. She is certainly not in the same camp as prolific real estate investor Grant Cardone, who says buying a home is an “illusion”, a “trap” and a “terrible investment”.

Rather, she echoes the opinion of personal finance personality Ramit Sethi. Ramit Sethi is a billionaire who rents out properties because “it's perfect for this time of year.” [his] life. “

And he's not alone. According to a report from RentCafe, the number of millionaire renters in the United States has tripled in five years, with 36% of his seven-figure club coming from Gen Z and Millennials. belongs to.

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

“This can be a really incredible wealth-building tool,” Dunlap said. But only if homeownership is something you actually want, are you ready to take on the responsibility and check out the math.

If you're not in that situation – either you don't have the money to buy or you don't want to commit to owning and managing real estate – there are easier ways to invest in real estate, such as online platforms. You can start with just $100.

What to read next

• Owning real estate for passive income is one of the biggest misconceptions in investing, but here's how to actually make it work.

• Escape Baby Boomer Regrets: Discover the Top 5 “Big Money” Regrets in Retirement and How to Protect Your Future

• Mortgage interest rates hit 20-year high: [Is it still a good time to buy a rental property?] (https://moneywise.com/investing/real-estate/mortgage-rates-are-the-highest-theyve-been-in-20-years-Should-you-still-consider-buying-a-rental-property ?Slow=WTRN3)

This article is for information only and should not be construed as advice. PROVIDED WITHOUT WARRANTY OF ANY KIND.