Feb 25, 2025
Home prices have been on the rise since the pandemic. And the combination of elevated prices and mortgage rates is making homeownership increasingly less feasible for many buyers.
Despite lowering slightly from 2022 and 2023 highs, the median sale price of a home was still $426,800 in the first quarter of 2024, according to the Federal Reserve Bank of St. Louis. And while some people crave the stability of homeownership, the numbers may not add up in favor of it.
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Say you have $170,000 in savings, and a good chunk of it is available for a down payment. You're currently renting for $1,900 a month, but buying a home raises your monthly payments to $3,000. You might assume that it isn't worth it.
In many cases, owning a home can cost a lot more than renting. You could potentially be better off investing your down payment in the stock market to set yourself up for retirement. So, it’s best to look at the big picture when making a big life decision that impacts your long-term financial goals.
Do the numbers make sense?
There are costs associated with buying a home that renters don't have to bear. In addition to a mortgage, you have to cover property taxes, home insurance, maintenance and repairs. And if you're buying a home that's part of a homeowners association, there are HOA fees to deal with, too.
That's why it's not a given that owning a home is the best financial choice. In the scenario described above, you're looking at swapping a $1,900 monthly rent payment for a $3,000 mortgage payment.
But that extra $1,100 doesn't account for property taxes, maintenance and other expenses. Plus, you'll need to front significant capital as a down payment to get the mortgage.
Of course, when you own a home and it gains value, you eventually profit from that. When you rent, you’re not building equity in an asset you own. However, putting your down payment funds into the stock market instead could deliver a higher return than putting it into a home.
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The U.S. stock market’s average historic return is roughly 10% per year. So, let’s say you’re looking at a $100,000 down payment on a home. If you decide to rent and put that sum into an S&P 500 index fund instead, even a more conservative 7% return over the next 30 years would result in a portfolio value of approximately $761,000.
Meanwhile, at the end of 1994 (30 years ago), the median U.S. home price was $132,000. At the end of 2024, it was $419,200, roughly a 217% increase.
If you’re putting $100,000 into a $500,000 home and its value increases by 217% over the next 30 years, it could be worth $1,585,000, a gain of $1,085,000.
However, that gain comes at the cost of your down payment, monthly mortgage payments, maintenance and more. If you put in $100,000 upfront and spend $3,000 monthly on mortgage payments over 30 years, that figure alone adds up to $1,180,000.
So here, you’re actually paying more than what you’re gaining — whereas if you put $100,000 into a stock portfolio that grows into $761,000, the $100,000 investment is your only outlay.
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Things to consider aside from the numbers
It's easy to argue that you can earn more money in a stock portfolio than you can make owning a home over time. However, there are aspects of homeownership that must be considered beyond the bottom line.
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For one thing, homeownership provides stability. When you rent, your landlord could sell your home from under you or decide they aren’t renewing your lease. That could be especially problematic if you have children, as having to move could mean being forced to pull them from their school district.
There's also the emotional stability homeownership offers. When you rent, your home might feel temporary even if you’re there for years.
Also, when you own a home, you can borrow against it as needed. It's sometimes possible to get a line of credit against a stock portfolio, but it's not as straightforward or as common as taking out a home equity loan or line of credit.
One final thing to remember is that owning a home is a lot of work. If you don’t have the patience for it, that’s another good reason to rent, aside from it potentially leaving you with more money at the end of the day.
Ultimately, it’s a tough call. Looking at the big picture, though, should help you come to a decision you’re happy with.
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Maurie Backman has been writing professionally for well over a decade. Since becoming a full-time writer, she's produced thousands of articles on topics ranging from Social Security to investing to real estate.
