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For many Americans, homeownership is a major financial and life goal. In fact, the majority of homes (65.8%) in the United States are occupied by homeowners, according to recent Census Bureau data.
But for others, the cost of homeownership has put the dream on hold until they can better afford the purchase. Still others choose to rent not only for financial reasons, but for the flexibility and other benefits it provides. Whether you're renting or buying a home, there are advantages and disadvantages to each, as we'll explore in this guide.
Homeowners vs. Renters Statistics
Is it better to rent or buy a home? The decision depends on your personal preference and unique circumstances. Let's break down some key facts and statistics to compare renting vs. buying a house.
Home Owning vs. Renting: What the Numbers Say
Census Bureau data from the second quarter of 2022 reveals that the homeownership rate is 65.8%, meaning nearly two-thirds of the occupied homes in the United States are owner-occupied. That's down from a 67.9% spike in the homeownership rate in the second quarter of 2020, likely due to the impact of the pandemic on the real estate market.
Generally speaking, these numbers tell us that Americans seem to prefer to own a home. Furthermore, a Pew Research Survey that asked Americans about their living preference found that 72% of renters said they want to own a home in the future.
Homeowner and Renter Demographics Data
Census Bureau data and the Pew Research Center analysis reveal that most renters tend to be young people and racial and ethnic minorities.
Younger people under the age of 35 are more likely than older generations to live in a rental―nearly two-thirds (65.9%) rent, according to a Pew Research Center's analysis of census data. The study also shows that 58% of households headed by Black or African American adults are renters. Similarly, 52% of Hispanic- or Latino-led households and 40% of Asian-led households rent their homes, compared to 27.9% of non-Hispanic white adults.
In contrast with the younger and minority-led households accounting for the majority of renters, the overwhelming majority of owner-occupied housing units are held by older people and those who are white and non-Hispanic. The study found that 42% of homeowners are ages 35 to 44, 31.5% are ages 45 to 54, and 75.1% of owner-occupied housing are owned by those who are white and non-Hispanic.
Income Data
Income is a significant factor in whether someone rents or buys a home. Buying a home typically requires a large down payment upfront, which can be challenging to come up with for those with low income.
According to Census Bureau data, 60.6% of people in the lowest income quartile and 87.6% of those with net worths below the 25th percentile are renters. These numbers decrease as people earn more, with only 10.5% of top income earners renting their homes.
People often fulfill the dream of homeownership once their incomes can support the expense and they qualify for a mortgage. The average income of home buyers is $102,000, according to the 2022 Home Buyers and Sellers Generational Trends Report from the National Association of Realtors Research Group.
Debt Data
One of the advantages of renting is that you don't take on debt, although that benefit is offset by the fact that you can't own your home, gain equity or enjoy certain tax deductions.
According to Experian data, average mortgage debt among consumers jumped 5.9% to $220,380 year-over-year in September 2021. The spike is likely the result of increased home values. And with the Federal Reserve raising interest rates several times in 2022, this number may continue to rise. Freddie Mac reports the 30-year fixed rate mortgage now averages 6.7%, more than double the rate from last year.
Rising interest rates increase monthly payments and can price many would-be buyers out of the market, or limit the homes available to them, as their monthly mortgage payment must increase to cover the additional interest.
Housing Affordability Data
Whether you rent or own your home, housing affordability has taken a hit recently. A Habitat for Humanity report found that 30% of all households in 2020 made mortgage or rental payments that were "unaffordable," meaning they make up more than 30% of your monthly household income.
Considering rental and mortgage payments have continued to rise since then, the affordability of housing is considerably more challenging for homeowners and renters alike. To that end, according to Census Bureau data, rates for vacant rentals skyrocketed 23% from the second quarter of 2019 to the same period in 2022. Meanwhile, the national median home price soared from $272,000 in May 2019 to $391,000 in May 2022, a mammoth 44% increase, according to Redfin.
What Are the Advantages of Renting vs. Owning a Home?
With inflation adding pressure to the economy and housing market, should you buy a home right now? As we've seen, rental rates are also high across the country. The decision to rent or buy a house in this economy is tough, so consider the benefits and downsides of each to help you make the best choice for you.
Pros of Owning a Home
- You will own your home once you pay off the mortgage.
- Your home equity will likely increase over time, helping you to build wealth.
- You may be able to take advantage of tax benefits, like deductions for property taxes and mortgage interest.
- You can upgrade or renovate your house as you please.
Cons of Owning a Home
- You have more expenses, such as homeowners insurance, property taxes and other costs.
- You must put up substantial money upfront to purchase a home.
- You could lose equity if home prices fall.
- You must cover all repair costs yourself.
Pros of Renting a Home
- You don't have to come up with as much money upfront to secure a unit.
- You have more flexibility to move, and it's easier to get out of a lease.
- Your move-in costs, security deposit and insurance are typically much more affordable than similar costs with a home.
- Your qualification requirements are much less stringent to qualify for a rental than a mortgage.
Cons of Renting a Home
- Your rent builds equity for your landlord, not you.
- Your rent amount will likely rise yearly, whereas your payment remains the same with a fixed-rate mortgage.
- You may have to move out on short notice if your landlord decides to sell the home.
- You don't have the same financial rewards as homeowners, such as tax deductions, home equity and property value that historically increases over time.
Check Your Credit Before Buying or Renting a Home
Whether you're renting or buying a home, having good credit can help. According to RENTCafé, renters' average credit score nationwide was 638 in 2020. Similarly, you'll need a credit score of around 620 or higher to qualify for a conventional mortgage.
If you plan on moving, it's wise to check your credit report and credit score for free ahead of time. You'll be able to see what a landlord or mortgage lender sees when they review your application. You may even raise your credit score instantly with Experian Boost®ø, which allows you to earn credit by paying your rent and other bills on time.
