Why Some Wealthy Americans Are Abandoning Homeownership

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In some cities, the number of millionaire renters has tripled in recent years. 

The Millionaire Next Door? The Millionaire Down The Hall may be a more apt name for a personal finance book written in 2023. A record number of affluent Americans are renting across nearly every major city in the nation. What’s behind the shift and what does it mean for the rest of us?

Lifestyle renters

Thousands of high-income Americans are renting these days, and they wouldn’t have it any other way. While the ownership of property may be a nice-to-have for these people, they are instead prioritizing the prime proximity and short-term commitment of a rental property.

A more central location is a major consideration for many affluent households, regardless of age. The young High Earner, Not Rich Yet (HENRY) crowd may seek the social life of downtown while the middle-aged worker may want to ditch the commute. Another group, retirees, may want to downsize into a more walkable neighborhood. For all of these people, renting in a more metropolitan area beats buying in a suburb.

Homeownership, and especially the mortgage loan that comes with it, is a long-term commitment. Bundling your living arrangement with an illiquid asset like a home may not be ideal for many high earners. Affluent young Americans may not want to settle down, and with high rates of job hopping, being able to drop everything and move on short notice is a must.

Patient renters

While some affluent households choose to rent, others may have the choice made for them. Home buyers today face a highly competitive market where supply and demand, the interest rate environment, and other buyers present many obstacles.

It’s no secret: the housing market is hot right now. Long gone are the days of the pandemic-era buyer’s market. Today, a home buyer in most cities can expect stiff competition, which can lead to waivers of inspection and hard-to-beat cash offers. It is no surprise then that affluent households who can afford to wait in their home search are increasingly likely to do so. Even though these buyers likely can enter the real estate market, they may wait for a better deal or fewer headaches in the buying process.

The Fed’s main weapon in fighting inflation is a double-edged sword. While higher interest rates are reining in inflation, they are also making it harder for buyers to finance the purchase of a home. A dramatic increase in interest rates means that Americans are paying hundreds of thousands of dollars more today than they were at this time last year to buy the same house. That kind of cash makes it hard to blame some consumers for sitting this market cycle out.

What this trend means for you

Wealthy Americans are, in record numbers, choosing to rent instead of buy homes. But the economic reverberations of that shift will affect more than just those affluent households. So, what signals can we read from this change?

The most major impact will be in the supply and demand of rental properties. A growing influx of renters means, in the short term, more competition and higher prices. And for the lowest income renters, often younger workers who cannot afford to pay higher rents, the results could be devastating. A report found that rentals by Americans earning under $50,000 annually dropped 11%, signaling that many young workers have been forced to move back in with their families.

The number of wealthy Americans renting is in an upswing across the nation. While some households are prioritizing location and flexibility over property ownership, others may be waiting out a crazy housing market. Regardless of your financial situation, a wave of renters could sweep you out of the rental market.

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