Why the ‘Rich’ Are Suddenly Renting Instead of Buying in these 5 Cities
Written by
Marc Guberti
Edited by
Zuri Anderson
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Some irch people are opting to rent instead of buying homes, and it’s especially prevalent in expensive cities. Redfin data compiled by Fox News positioned San Jose, Orlando, San Francisco, New York, and Seattle as the five cities that have the most “rich renters.”
This trend is gaining momentum as housing prices go up, and recent developments suggest that renting will become more common. Here’s why.
It’s Cheaper To Rent
San Jose is one of the wealthiest housing markets in the entire country. It’s about an hour away from San Francisco, and its excellent location has resulted in high housing costs. The median home costs $1.2 million, according to Realtor.com, while the median rent is $3,103 per month.
If you take out a mortgage for a $1.2 million Ashburn, Virginia home, for example, and put 20% down, your monthly mortgage payment will range from $5,600 to just over $6,000 per month, and that’s if you have excellent credit. A fair or good credit score puts you closer to the $6,000 to $6,500 range.
Renting in this scenario can save you $2,500 to $3,500 per month, depending on your credit score. That extra money can go into a stock portfolio or an emergency savings account.
Renting Is More Convenient
Not only does renting free up more cash flow each month, but it’s also more convenient. You don’t have to worry about surprise expenses, such as the roof needing some work after a bad storm. Furthermore, you can move out when your lease is up or under special circumstances.
A home can take more than a year to sell, while renters can leave their unit at the end of the term and live in another city. Being more mobile as a renter has advantages, especially for rich people who want to build their networks in multiple locations.
Renting has less commitment than owning, and even though you don’t build equity as a renter, the money you put to work in the stock market can make up for lost home equity.
Down Payment Minimums Are Pricing People Out
Going back to the $1.2 million home that can have a monthly mortgage payment ranging from $5,600 to $6,500, it’s important to remember that you only secure that monthly payment if you put 20% down. That’s $240,000 in this example, and it doesn’t even include origination fees, closing costs and property taxes.
A $240,000 down payment gives you the right to higher mortgage payments than what you would pay in rent. However, that same $240,000 can cover more than six years of median rent. It’s a lot less stressful to rent instead of buying.
You can also put your money to good use in the stock market. For instance, an index fund can outperform real estate gains, and investors who are willing to venture into high-growth opportunities like artificial intelligence might wind up with much higher returns.
Mortgage Rates Remain High
One of the challenges of buying a home in today’s economy is high mortgage rates. While interest rates have been going down, these rates are a bit too much for many aspiring homeowners, thanks to high housing prices. Both factors result in excessive mortgage payments, especially when you compare them to rent prices.
Some rich people are renting while waiting for interest rates and housing prices to go down. Younger generations getting squeezed out of the market can contribute to this effect in the long run. While affordable homes can still gain traction, those homes are very hard to find, especially in high-net-worth cities.
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