If Homes Cost Too Much, Is It OK To Rent Forever?

If Homes Cost Too Much, Is It OK To Rent Forever?

In places where housing prices are consistently high, say, coastal areas as well as big cities and their close-in suburbs, the barriers to entry for owning a home are steep. When a typical three-bedroom home within reasonable commuting distance sells for $500,000 or more — and taxes add on upwards of $1,000 a month — even middle and upper-middle class professionals can find it hard to save up.

Really, to get in the game, you need to have $150,000 in the bank; that’s $100,000 for a down payment, about $10,000 for closing costs, and enough to pay for the move, buy some basics for your new home and have a bit reserved for emergencies. If you save $1,000 a month, at a conservative 4%, it will take 10 years to build up $150,000 according to this savings calculator. If you can save double that, it will still take nearly six years to save. True, some people can save more than that — or will invest more aggressively — but for middle class professional couples, it’s hard to imagine, particularly if you are saving for retirement and have children.

As a renter in an up-and-coming neighborhood in Manhattan, I’m particularly interested in this subject. I pay an admittedly low rent — for New York City — of under $2,300 for a large two-bedroom apartment. When I run the numbers on any mortgage calculator, it looks like we’d be spending more than $3,500 per month on a $400,000 mortgage (including taxes, but not including all the unknown expenses that come with home ownership). I know there is an upside: tax breaks, an appreciating asset, a home to call our own and shelter from the shock of rent increases. But, increasing our outlay on housing by 50% or more sounds like asking to be house poor. We’re still going to save up and sure, we’ll likely get raises along the way, but we’ve resigned ourselves to being renters for up to another decade. I know we’re not alone; I’ve heard the same story from people I know or work with in places like San Diego, Chicago and Washington, D.C.

So, readers, when should someone give up the idea of owning? Is it OK to rent forever, or close to it?