Many people strive for what they call “ the American dream,” to own a house with a white picket fence, have 2.5 children and a good paying job. Times have changed and some aspects of the American dream have as well. Buying a house has always been the norm while renting is considered to be throwing away money.
But is this still the case?
In 2015, only 62.2% of Americans own a home. This is the lowest home ownership has been since 1960 and it is continuing to fall. So is renting the new buying? Does the American dream still hold true for the new generation?
Where You Live Says a Lot.
You don’t have to be told that there are some placed in the U.S. that are more expensive than others. According to HSH.com you would need to make roughly $95,000 a year just to afford the average home in Los Angeles. With the median household income in the U.S. being only $51,939, a large portion of the US population falls short of being able to buy a home. Cities that require a high salary are in abundance, including:
- New York $85,000 per year
- Washington DC $77,000 per year
- San Francisco $144,000 per year
In places like these it is nearly impossible for most people to buy and therefore renting is the only option.
On the other hand, there are some places in the US where housing prices are very affordable. There are dozens of cities where you can buy a 4 bed 2 bath house for around $100,000. Some of these places include Augusta,GA ., Waukegan, IL., or Buffalo, NY. If you live in cities like these then it may be foolish not to buy, unless you don’t plan on staying long.
We Just Can’t Hold Still
According to the most recent data from the Bureau of Labor Statistics, “The average worker today stays at each of his or her jobs for 4.4 years.” This generation does not like to stay in one place for too long. They are swapping jobs and moving around frequently, always looking for the best opportunity. If you are not staying in an area for more than a couple years, again it would not make sense to buy a house. Renting will not tie you down to one area and will make moving that much easier.
Don’t Ignore the Rule of Thumb
Rules of thumb should not be use as deciding factors when making decisions, but they are a good place to start. Here are couple that will help you when deciding whether to rent or to buy:
- Don’t buy if you are going to own the home for less than 5 years.
- Price-to-rent ratio = Average listing price/(average rent*12). If the ratio is below 15 then it’s better to buy, if it’s above 15 then it’s better to rent.
- Your mortgage or rent should be less than 30% of your take home pay.
These analyses will give you a good idea of what the right choice is in your area.
Finally, make sure that your mathematical decision lines up with your emotions. If you don’t like the idea of being responsible for everything inside your house, then buying may not be for you. Make sure you know what responsibilities you are willing to take on.
Do you think it’s better to rent or buy in the city you live in?