Moving back and forth from Tennessee to Alaska, Michael Rogers and his wife Christy have twice been stuck simultaneously paying a mortgage and rent. Once, in 2006, the situation dragged on for eight months, finally ending when they sold their house in Tennessee for $20,000 below what they’d paid for it.
Other adventures in homeownership ended well — the couple doubled their money after selling a fixer-upper. Then later, with another property, they had to pay out $30,000 to fix a mudslide around their home, a mistake caused by the builder.
Two years ago, the Rogerses moved to Kingsport, in northeastern Tennessee, where they signed a lease on an apartment they thought would be a yearlong stopgap before buying again.
The couple just renewed their lease for a third year, and have decided to remain renters for good. Michael Rogers, a construction manager, likes the convenience of being able to move when a job calls.
Either by choice or by being priced out of the market, many people have decided that renting forever is their best — or only — option. Housing costs and interest rates have risen in the past few years, and it can make financial sense to rent. (The New York Times has recently updated its popular rent-versus-buy calculator to help people understand the trade-offs.) In the 1960s, the median house price was a little more than twice as much as the average income. It’s now nearly six times as much.
Homeownership is a traditional strategy for long-term wealth building. For people who aren’t planning to buy, creating a strong financial plan without building home equity requires a different mindset.
Owning a home isn’t a magic bullet to secure retirement. Rogers has seen how being “house poor” has affected older family members, one of whom has three-quarters of her net worth tied up in her house. That situation leaves people with the option of borrowing against the equity in their home or selling the home to get at the value within it.
He’s focused on investing instead, preferring the liquidity and stability of the stock market.
“If you’re buying something like a broad-based U.S. stock index, you’re just kind of buying a slice of the entire U.S. economy,” Rogers said. “When you buy a house, your risk is concentrated literally down to one house, in one neighborhood, in one state.”
Rogers has found that people tend to focus on home equity over other factors. He thinks that can be a mistake.
“In the current market, particularly in my area, rent looks like an absolute bargain compared to what houses are selling for now,” he said. “That allows me to really bump up my savings rate. People are like, ‘Well, you’re not building equity.’ Yeah, but I’ve got a 35% savings rate. I’m building investment accounts much faster than I would ever build equity in the house.”