NerdWallet's Smart Money Podcast - The Latest Trends in Housing: Why Renting Is Gaining Momentum

Episode Date: May 8, 2024

Explore key insights into the current real estate market as the Nerds unpack the results of the 2024 Home Buyer Report. Should you rent or own your home? Hosts Sean Pyles and Anna Helhoski explore the financial and lifestyle implications of each choice, drawing insights from a recent NerdWallet survey and a firsthand account from fellow Nerd Elizabeth Renter, who transitioned from homeownership to renting. From rising home prices and mortgage rates to the hidden costs of homeownership, this episode uncovers the reasons why renting might be a less stressful option in today’s market. Listeners will gain a deeper understanding of the nuanced considerations involved in deciding between renting and owning, along with actionable advice for managing the financial impact of each choice. Later in the episode, Sean and Anna discuss the latest money headlines, including insights into April’s job numbers, updates on Social Security’s financial outlook, and an intriguing ballot measure in California aimed at improving financial literacy through high school education.  In their conversation, the Nerds discuss: renting vs owning, homeownership, renting, home buying, money headlines, real estate market, property ownership, rental costs, home prices, mortgage rates, renting benefits, homeownership advantages, rental market trends, buying a house, renting tips, home affordability, renter demographics, owning a home, renting statistics, property investments, housing market analysis, cost of homeownership, real estate investments, renting lifestyle, home equity, home maintenance, property taxes, renting flexibility, housing affordability, home value appreciation, rental market data, homeownership myths, rental agreements, home repairs, mortgage affordability, housing expenses, rental income, and home ownership challenges.

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Helhosky. And this is our weekly money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. We'll go deep into a single topic and then leave you with the latest money headlines. Today, we're talking about the roof over your head. Anna, I believe you and I represent the spectrum of how people pay for that roof. Yep. You own iRent in New York City, which means I'm unlikely to ever own. But I think we're both pretty happy with our choices, Sean.

Indeed, we are. And that's what we're going to talk about today. Home ownership versus renting. Now, the ethos in America is that if you're renting, you're throwing away money. And home ownership is part of the vaunted American dream, right? Ownership is seen as a path to wealth. But today, we're going to hear about why sometimes renting is where it's at. Yeah, I gotta say, I do appreciate having a super in the building who fixes things so

I don't have to hire someone. Shout out to Steve. Well, we are joined today by a fellow nerd who recently went from home ownership to renting, and she is delighted about it. Elizabeth Renter. Welcome back to Smart Money. Hey, Sean, thanks for having me. And I know I have the perfect or worst name for this segment. I think perfect. Did your name used to be Elizabeth Homeowner? Very funny, Ana. Actually, it did. I just got back from the social security office

where I changed it. Well, all kidding aside, what is your story here, Elizabeth? Why are you becoming a renter? Well, the list of reasons is long, but the short version is, is I moved a long distance to a city that I've never lived in before. And renting for the near future gives me some time to see if this is somewhere that I want to stay long term. Yeah, I've been there, Elizabeth. I've rented 13 different apartments over the last 15 years because renting gives me the freedom to move pretty much whenever I get that itch. Wow. I feel that, Ana. And for me, another big factor is that I wanted to live downtown in the midst of the action. And the cost to buy in this particular city center is

much higher than the cost to rent. So let's talk about a NerdWalt survey that took a look at people's notions around renting versus owning a home. Tell us about some of the facts and figures. Yeah, in our 2024 home buyer report, we took some time out to talk to renters specifically. And we found that while many of them are discouraged, they'd rather be buyers,

37% of renters plan on renting forever. And that's for a multitude of reasons, but three quarters or 75% of renters plan on renting forever. And that's for a multitude of reasons. But three quarters or 75% of renters say it simply fits their lifestyle better than owning. That said, at least some people seem to be resigning themselves to renting. We did find that about one third or 34% of renters are embarrassed to admit that they rent instead of owning. And that stat right there really struck me. It's one thing to be unfulfilled with renting or to want to own but not be able to afford it in the current market. It's an entirely different thing to actually be ashamed about your status as a renter.

I want to dig deeper into some of those numbers, Elizabeth. First, let's talk about the costs of home ownership. I think for a lot of people in America, those costs have become prohibitive. It's a wild market out there. And with a brief exception in 2022, it has been for years. You're right, Sean. And actually, 2022 was wild in its own way. Rates were really low, which was great for buyers, but it made competition wild. That said, there are a few things that make the current market especially difficult for buyers. Home prices, which rose 31% from December 2019 to December 2023, and mortgage rates, which rose from sub 3% in 2021 to around 7% now. And driving those higher prices is a lack of supply. There was a shortage of available homes for sale before the pandemic, but now the whole idea of rate lock is keeping

that supply depressed. People that own don't want to come off their low rate mortgage. All that to say, homes are expensive and there aren't enough of them. And if you're fortunate enough to find one, the mortgages are more expensive than we're accustomed to. And so for these reasons and more, renting can not only be a less costly option, but also way lower stress right now. And another reason people don't want to own is that it restricts that freedom we were talking about, right? It's a lot more difficult and involved to sell a home if you want to move than if you just give a month's notice at your apartment building or rented home.

Yeah, that's right, Ana. We hear stories of people selling their homes for all cash before they hit the market and closing in mere days. But these stories are far from the norm. Selling a house takes preparation and it's stressful. And in my experience, something always goes awry. So unless you've identified your forever neighborhood when you're considering buying, you should keep this in mind. Selling is not easy. And speaking as a homeowner, I also have to say that the mortgage and taxes and insurance, which are what people think about when they tend to think about the costs of a home, those aren't the only things that you're going to pay for. You might have to replace the roof

or the refrigerator, and God forbid you have a bug infestation. All of those things come out of your pocket when you're a homeowner. But if you're a renter, somebody else has to take care of that. Absolutely. And Sean, this is where I say hold my beer. The home I'm selling is 140-year-old Victorian. And some of your listeners might remember me talking about it on a previous podcast. I love DIY work. Love it. But it's a lot even when you enjoy it. And it's one thing to plan for a renovation, but it's a completely different story to find out you need a roof or you have radon in the basement. Yeah, ask me how I know, but just kidding. I don't want to talk about it. For legal reasons, we will not talk about it. Exactly. We generally recommend homeowners set aside one to 4% of their home's value for

maintenance costs, but it's a good idea to have a sort of home emergency fund in place too for those bigger expenses that come around every so often. And Elizabeth, I wonder if you could talk about this idea of your home as an investment. I think that this is where the whole notion of renting as pouring money down a drain comes in. If you're a homeowner,

your house is gonna go up in value, right? So it's an investment. But folks learned a harsh lesson in the 2008 financial crisis that home values don't always go up. Talk us through that idea and how it plays into people's decisions to rent. Yeah, Ana, it is an investment. But like all investments, there are risks. Some investments make money and some lose money. The housing market is not a guaranteed win. Now, historically, if you hold on to a home long enough, it will appreciate. But you can't be certain going into it how much it will appreciate or how long it will take to get there. Some homeowners are keen to say renting is just

throwing your money away, like you said. In fact, 71% of Americans say renting is a waste of money compared to buying, according to that homebuyer report. But there's a whole lot more to homeownership than the financial considerations. These are very important, but they're not the entire picture. Well, I have to say, I do think that the American economy and certainly the tax structure tends to favor homeownership. And I think it's so ingrained in our culture that when people rent, they sometimes feel like they're not doing life right. Like somehow you're not an adult if you don't own your home. But first of all, you do you if you want to rent by all means rent. And second of all, do the math for yourself and figure out what works and whether you even want to take on the responsibilities and tasks of owning a home. If you don't, that's

totally cool. Elizabeth and Ana, what do you think about this notion that you've just got to be a homeowner? Hear, hear, Sean. So 54% of Americans and an even greater shares of younger Americans feel like there's too much pressure to own a home. The way I think about it is this. We spend our money on the things that we value. And some people value freedom of movement, lack of responsibility for maintenance, or not paying property taxes

more than they do value the benefits of home ownership. It's perfectly okay to pay rent for a home that reflects what you value. That's not throwing money away. You're paying for your home, the place you feel safe, where you lay your head at night, with the added benefits of being a renter. Now, if you're renting because you can't afford to buy, that's another story, right? But if you're making a conscious decision to rent because it reflects what's important to you, that's perfectly fine. I agree, Elizabeth. Sometimes I wish I was a homeowner. I really do. But all I ever hear about from homeowning friends are the property taxes and the expensive things that keep breaking in their homes. Just the other day, a friend of mine had her house fill up with

smoke in the middle of the night from a faulty furnace. And now that furnace has to be replaced entirely. Honestly, I'm good with what I've got. Well, Elizabeth Renter, thank you so much for being with us today and good luck on the move. Hey, thanks so much for having me again. Up next, a few money headlines from the last few days. So Ana, one thing you're probably going to need whether you rent or own your home is a job. Yeah, anyone who's giving you a mortgage or having you sign a lease is usually going to want to see some sort of employment record that goes along with your income. Well, the jobs picture in this country just got a little more complex last month. Employers have been adding a whole lot of jobs to the economy for months, even years now. And it's one of the things that the Federal Reserve looks at when it's making interest rate decisions. In April, they still added jobs, but not at the scorching

hot rate that they've been doing. The Labor Department reports that the economy tacked on 175,000 jobs. That's lower than the average monthly gain of 242,000 over the last year. The unemployment rate edged up to 3.9%. Just a couple of days before that number came out, the Fed had decided to extend its pause on doing anything around interest rates because of multiple reasons, including that inflation still seems to persist. The drop in job creation may well factor into any future decision around bringing rates down. Sean, we're still a few years away from collecting Social Security. A few.

But the folks in charge of Social Security and Medicare say unless Congress acts, both programs could run out of money to pay full benefits in a little over a decade. If nothing is done, Social Security would start to pay out just 83% of benefits owed to seniors. This is an annual report out by the trustees who oversee the two programs. It said that the numbers could have looked even worse had it not been for the hot job market, which keeps people employed and paying into Social Security and Medicare. It's hard to know whether Congress will try to work on this this year, but one thing we do know is that we're all voting in November. Yep. If this is an issue that concerns you, and if you want to get out of the system what you've

paid into it, it likely concerns you, look at the candidates' views on Social Security and Medicare, and then vote. Speaking of voting, I know neither of us lives in California, but I read recently about a measure that looks like it will appear on that state's ballot this year. If approved by California's Secretary of State, voters would have a chance to say yay or nay to the California Personal Finance Act, which would require a semester of personal finance curriculum in high schools. Yeah, CalMatters reports that the measure would require financial literacy in order to graduate, everything from taxes and budgeting to investing for retirement, which could be especially important if social

security isn't funded. Well, obviously you and I can't vote in California, but I'm all for anything that helps people figure out money and finances. Heck, even if it would eventually mean we're out of a job. This is so, so important. Sean, did you have any personal finance in high school? I had a very brief section in a home ec class about balancing a checkbook, something I've never actually done as an adult, but that's about it. What about you, Anna? I think I had that same home ec class. I still have a checkbook, but I've definitely never balanced it. Well, until then, we are happy to step into the void no matter where you live. And that's what we saw and heard over the past week in Money News. Let us know what we missed and send us the headlines that you've seen

and want to hear more about. That's it for this week's money news. We always welcome your money questions and comments. Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. Or send us a voice memo at podcast at nerdwallet.com. And remember to follow, rate, and review us wherever you're getting this podcast. Today's episode was produced by Tess Bigland and edited by Rick Vanderkneife. Sarah Brink mixed our audio. Here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes

and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.