Ownership isn’t always what it’s cracked up to be.
For many reasons — including affordability — more Americans are choosing to rent everything from cars and apartments to clothes and furniture these days, according to a report by Intuit Credit Karma.
Far beyond the traditional tuxedo, the rental industry has expanded in recent years to include power tools, musical instruments, designer handbags, baby items and even funerals. caskets.
Now, 28% of adults regularly rent goods and services, according to Credit Karma. However, when housing is factored in, this figure jumps to 47%.
The growing share of renters is largely due to higher prices, although some people simply prefer renting to buying, opting for a “rent-first” lifestyle, according to the survey of more than 2,000 adults in June.
More from Personal Finance:
“Emotionally” your portfolio ahead of the election
“Recession pop” is in: How music bucks economic trends
More Americans are struggling even as inflation cools
In addition to affordability concerns, more than half – 58% – of respondents said they find value in renting because it allows more flexibility and is a way to avoid overspending, which has become a growing concern among millennial and Gen Z adults.
“Renting is a great option for many people,” said Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners in Jacksonville, Florida. However, it always pays to do the math, he advised.
“Some people rent clothes and, for special events, that can be a good thing,” said McClanahan, who is also a member of CNBC’s Advisory Board. “However, if you know you have a lot of special events, some really good ones [owned] pieces can last a long time.”
Clothing prices have been hit hard by inflation. As of July 2020, men’s and women’s clothing prices are up 15% and 13.3%, respectively, according to the US Bureau of Labor Statistics’ consumer price index.
Meanwhile, it may not make as much sense to lease a car, McClanahan said, “because it ends up being a higher cost in the long run.”
Although monthly lease payments tend to be lower than car loan payments, financing a car with a new or used auto loan usually ends up costing less than a lease in the long run, especially for consumers who keep vehicles for years.
Additionally, car lease agreements often come with routine services included in the terms, but the downside is that there are also mileage limits and possible wear and tear charges.
More importantly, car buyers will benefit from full ownership of the vehicle at the end of a loan term and will have built equity in the asset.
To buy or rent a home in today’s market
Since housing costs are the biggest expense for most people, it can make sense to rent, at least initially.
“Unless you’re absolutely sure you’re committed to staying in a home for at least five years, you should definitely rent,” McClanahan said. “Only when you have life, work and family in order does it make sense to buy a house.”
Because millennials are more likely to put off marriage and starting a family, they are able to cast a wider net when looking for a place to live or relocate for work if necessary, which makes renting more useful.
“This generation is different,” said Dottie Herman, vice president of Douglas Elliman. “They believe in home ownership, but now there’s a choice.”
According to Herman, “it’s not that important to them that they own a house. A lot of them say, ‘I’ll rent and think about it.’
Of course, some Americans, especially young adults, rent because they have to.
Higher mortgage rates and a shortage of homes on the market relative to buyer demand have kept home prices high and created an affordability crisis for would-be buyers. Sometimes renting is the only option available.
Nearly three-quarters of would-be homeowners said affordability is their biggest obstacle, according to a report by Stock exchange. Among younger adults, 50 percent said homeownership is only affordable for the wealthy, Credit Karma also found.
Although wealth creation has concentrated among homeowners in recent years, there is often pressure to buy when it may not make financial sense, according to Michael Krowe, director of financial planning at Edelman Financial Engines.
“Don’t make a home purchase just because you think it’s going to go up in value,” he said. “You may think your home is an investment — it’s not. Your home is a place to live.”
“You buy a home because you like the neighborhood, the schools and the proximity to friends and family,” Krowe said. There can be benefits to renting in this market, he added, particularly if it allows you to avoid pushing your limits.
