Young people used to buy houses far more readily. That’s changed, as have the prices of houses, the down payment amount, and the growth of mortgage interest rates. In the process, many younger consumers who might have purchased a starter home aren’t.
A good number can’t afford it, which has always been the case, although never so many. Different today is a chorus of voices telling them smart people are renting instead of buying and putting their money into investments, whether stocks or some alternative vehicle.
For some, it might make sense. Everything might work out. For others, though, the move is riskier than it might seem, especially if — as periodically happens — markets suddenly change for the worse.
Confusing Numbers
Trying to compare rentals and homeownership is tricky. The latter is much more expensive to get into. Currently, the former offers lower monthly payments, though that is not historically true. Time to wade in a bit with a graph from the Federal Reserve Bank of St. Louis using data from the U.S. Bureau of Labor Statistics and the U.S. Federal Housing Finance Agency.
The green line represents housing prices; the blue, monthly rents. In that sense, you can’t compare the two. One is the total price of a house; the other is how much the average renter pays per month. Both are indexed to show increases compared to a baseline rate.
Until June of 1975, the two increased at about the same pace, making a shift from an apartment to becoming a property owner much easier. Then home prices began to escalate, seeing a widening gap in growth. The monthly cost to purchase a house continued to rise because it’s proportional to the house price.
Finding The Balance
Bankrate.com had a study in April stating that in most large U.S. metros, “renting is increasingly more affordable than buying.” That has become the argument many make. House costs are enormous, granted. Fixed 30-year mortgage rates at last call, October 16, were 6.27%. That’s far down from the 7.79% two years ago, but much higher than the 3% to 4% range that was still available in the first three-fourths of 2021.
“Average rents are cheaper than average mortgage payments (homeowners insurance and property taxes included) in all 50 of the largest U.S. metros in 2025, with the cost difference between the two growing in all but 12 of those metros since last year, according to Bankrate’s Rent vs. Buy Study,” Bankrate wrote.
As The Wall Street Journal wrote, many in Gen Z have turned instead to putting the rental/purchase gap into investments “thanks to soaring share prices and more investment options.”
The Journal also noted that younger investors have only known glory days: stocks returning 14% a year, far above historical norms; meme stocks have become fads; alternative asset types have become rages that promise immense gains. They become promises of guaranteed gains that would outpace
Deepening The Analysis
There are two inherent problems in the approach.
First, here’s the kicker on the rent/buy argument. Rents will always trend upward. House prices can take sharp drops. But even when they don’t, the monthly payment on a long-term mortgage remains largely the same. Overall costs might increase with insurance and taxes, but payments are fairly stable. Once locked in, your housing costs slip into a roughly horizontal line. It doesn’t matter how much house prices grow now, as someone is now off the growth escalator.
Wherever you look on the graph, including now, within six to 10 years, the pace of growth of rent is faster than the growth of house prices. And while the house price and corresponding mortgage remained flat over that period, rents continued to rise. The gap is wide immediately, but it shrinks over time. The period for investment leverage is short.
Then, there is a danger when investors have only known good times. They don’t last forever. Long-term investment is a good idea, but not when the strategy assumes nothing can drop, it can become an all-in approach that is extraordinarily risky.
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