25% of Millennials Expect to Rent Forever. Is That a Good Move?

For many, the rent vs. buy decision is a tough one. Most people will rent for a while, then eventually buy a home. But with real estate values so high compared to incomes and mortgage rates much higher than in the recent past, a lot of potential buyers are giving up.

In fact, according to recent research from ApartmentList.com, almost 25% of millennials are planning to rent indefinitely. This is up dramatically since 2018, when only 13.3% planned to rent forever. It's clear the recent uptick in the housing market has had an effect, since this number jumped to 21% in 2020 and has only gone up since then.

What's the attraction to renting?

A lot of people have been sold on the idea of the American Dream: buying a home, starting a family, and building a life in one place where they can set down roots and grow. And for those who are ready to settle down and really commit hard to a single location, buying a home is an important part of it -- it ensures you have the most control over your living situation as possible.

But for many, many more people (and apparently a quarter of millennials), renting is very attractive. This could be especially true early in their careers, when moving around is likely a given and there's barely enough time to eat a meal, let alone choose new paint colors for the dining room.

For 77% of those millennials surveyed, their overall reasoning for committing to the rental life forever is that they don't believe they can afford a home in their area. And in many places, that is certainly a valid concern. Until smaller or less expensive housing is built, those people will be locked into renting without a really incredible stroke of luck or a lot of effort on their part.

A much smaller concern, but still second on the list, was that millennials didn't want to pay for home maintenance and other home-related costs. A full 30% answered with this response to the question of why they were renting indefinitely. On a related note, 19% felt like buying a home was financially risky.

For 28% of respondents, they simply needed or wanted the flexibility they have with renting. Like I mentioned above, if you're moving often for work or you simply aren't ready to commit to a community or neighborhood, renting can allow you to sample the many options you have before you choose one to be tethered to long term.

But is renting best for your finances?

I have long believed that owning a home is the best way to build a firm foundation for your financial future because you're fixing a lot of your housing costs by committing to that mortgage. Your insurance premiums and taxes may go up every year, but you will not experience the other price increases that renters have to absorb. Plus, you can invest in your own community because you know you'll be there in the future, which then helps increase your property value, too.

But it's more than just a belief that ownership is better for you than renting. A 2023 survey of consumer finances produced by the Federal Reserve actually managed to quantify this. Renters in 2022, it found, had a median net worth of $10,400, up 43% from $7,300 in 2019, the last time this survey was performed.

Homeowners, on the other hand, had a whopping $396,200 in net worth in 2022, up 34% from $295,500. Granted, the median home sales price in Q4 2022 was $442,600, but according to the U.S. Census Bureau, in 2022, 61.5% of homes had a mortgage in place, and 54.5% of owners had been in their home no longer than 12 years, meaning they were only halfway through paying off those mortgages, at best.

So, there's something else besides equity that's driving that difference in net worth: the security to make riskier investments and the knowledge that you can finally start saving for retirement rather than for the next costly move to the next rental unit.

Should you buy or rent your next home?

I look at it like this: Renting is a short-term solution to a long-term problem, and buying a home is a short-term pain that pays off big in the long run.

Of course I think you should seek out a mortgage lender to find out what you can buy -- because I've seen it work in my own life. Renting is fine as a temporary solution. But when I tell you the house I bought 10 years ago has a monthly payment that's half of what the cheapest rents in my city are, that shows the power of ownership.

I'd have a hard time if I had to pay market rates. Even though my insurance costs have gone up substantially, my mortgage payment would only get me a crappy apartment with a roommate if I was renting. It's worth it to me even if I have to sometimes fix things myself or call the HVAC guy for the 100th time to finesse the heater back to life when winter sets in.

Housing security is the key to financial security -- not a key, but the key. If you rent forever, you're going to be at the whim of your landlord and the market for as long as you live.