Owning a home is an expensive challenge for Gen Zers and millennials. Renting remains the more affordable option, but in some cases, renting can be just as expensive.
On average, Gen Zers spend 30% of their income on a mortgage if they bought a home between the ages of 22 to 29, a RentCafe study found. Millennials spent even more on homeownership before the age of 30, at 36% of their income.
Renting, on the other hand, is slightly cheaper for both Gen Z and millennials as both generations spend about 27% of their income on rent.
Millennials that bought homes in their 20s generally paid a higher price tag than Gen Zers in their 20s. On average, millennials paid $172,000 on mortgage costs between 22 and 29, which is $7,000 more than what zoomers would pay.
The financial difference between renting and buying is what has led Gen Z to rent more frequently than they buy, the RentCafe study said. By 30, zoomers would pay an extra $21,000, on average, if they bought a home versus rented.
However, geography plays a major role in the rent vs. buy game. Gen Zers living in expensive metros like San Francisco, San Jose, Los Angeles, Boston and New York choose to rent despite high rents because owning is even costlier.
Zoomers living in less expensive cities like Ann Arbor often choose to buy instead, RentCafe found. Between 22 and 29 years old, mortgage costs will add up to $136,000 in Ann Arbor, which equals 23.8% of the average Gen Z income. This is less than the $157,000 they would pay for rent in the same area.
If you’re thinking of renting over buying and are ready to shop around for a home loan, consider using Credible to help you easily compare interest rates from multiple lenders in minutes.
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Buying a home is more expensive than ever
Home prices are still up across the country, making the market tight for buyers on a budget. The average home-sale price hit $383,725, the highest it has ever been, Redfin reported. Compared to last year, that’s a 5.2% jump in price.
Mortgage rates also hover around 7%, making the cost of borrowing unaffordable for many buyers. There is some hope, as inventory continues to rise. New listings are up 10.2%, but high prices and high rates are causing a lock-in effect, and buyers are weary of taking on such high costs.
“My advice to sellers is to price your home fairly. Even though sellers are getting top dollar at the moment, they should price competitively to attract buyers from the start and avoid having to drop their price as stubbornly high mortgage rates eat into buying budgets,” Redfin Economic Research Lead Chen Zhao said.
“My advice for serious buyers who can afford today’s costs is to shop for your dream home and accept that this year is probably not the time to find a dream deal. Price growth may cool slightly in the coming months if mortgage rates stay high or rates might fall slightly — but overall housing costs are likely to remain elevated for the foreseeable future,” Zhao said.
If you’re looking to purchase a home in today’s market, you can explore your mortgage options by visiting Credible to compare rates and lenders and get a mortgage preapproval letter in minutes.
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Renting costs are going down nationwide, but remain stubbornly high in a few cities
The cost of living is high, whether renting or owning. Rent is trending down as a whole, but certain cities are seeing the opposite happen, a Realtor.com report said.
Out of the 50 largest metropolitan areas in the country, 18 of them saw rents increase in March. Chicago’s rent went up the most — by 4.3% compared to a year ago. The average rent was $1,846, $76 dollars higher than last year.
In New York, rents jumped 3.8%, and now average $2,876. Boston rents came in even higher, averaging $3,023, a 3.3% increase since 2023. Mortgage prices in these cities aren’t much better.
“The high housing prices in these expensive markets, plus elevated mortgage rates, may force people to stay in rental markets longer,” Realtor.com economist Jiayi Xu said.
“The longer tenants wait to buy homes, the more demand builds for rentals,” explained Xu.
Prospective buyers should visit Credible where you can view multiple mortgage lenders and get personalized rates within just minutes, all without impacting your credit.
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