Possession isn’t always what you expect it to be.
According to a report from Intuit Credit Karma, more Americans are choosing to rent everything from cars and apartments to clothes and furniture these days for a variety of reasons, including affordability.
In recent years, the rental industry has expanded far beyond traditional tuxedos to include power tools, musical instruments, designer handbags, baby products and even funeral caskets.
Currently, 28% of adults regularly rent goods or services, according to a Credit Karma survey, but when you factor in housing, that number jumps to 47%.
A June survey of more than 2,000 adults found that while rising home prices are the main driver of the rise in renters, some people are simply choosing a “renter-first” lifestyle, preferring to rent rather than buy.
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Aside from affordability concerns, more than half of those surveyed (58%) said they see value in renting because it offers flexibility and is a way to avoid overspending, a growing concern among millennial and Gen Z adults.
“Renting is a great option for many people,” says Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners in Jacksonville, Fla. But it always pays to do the math, she advises.
“Some people do a good job of renting clothing, and it can be good for special events,” said McClanahan, who also serves on CNBC’s advisory council. “But if you know you’re going to have a lot of special events, it’s good to have some really good rentals.” [owned] The works can be used for a long time.”
Clothing prices are heavily affected by inflation: Since July 2020, the prices of men’s and women’s clothing have increased by 15% and 13.3%, respectively, according to the U.S. Bureau of Labor Statistics’ Consumer Price Index.
On the other hand, leasing a car may not make much sense, McClanahan says, “because it will cost you more in the long run.”
Monthly lease payments tend to be lower than car loan payments, but buying a car with a new or used car loan is typically less expensive than leasing in the long run, especially for consumers who plan to keep their car for many years.
Additionally, car leasing agreements usually include regular servicing as part of their terms, but they also have the downside of potentially having mileage restrictions and charges for wear and tear.
More importantly, car buyers benefit from outright ownership of the vehicle at the end of the loan term, building equity in the property.
Buying or renting a home in today’s market
Since housing costs are most people’s largest expense, it may make sense to rent, at least at first.
“You should definitely rent unless you plan to stay in your home for at least five years,” McClanahan says. “Only once your life, career and family are settled will it make sense to buy a home.”
Millennials tend to put off marriage and starting a family, which allows them to cover more ground when searching for a place to live and allows them to relocate for work if necessary, making renting more affordable.
“This generation is different,” says Dottie Herman, vice chairman at Douglas Elliman. “They believe in homeownership, but now they have options.”
According to Herman, “homeownership is not as important to them. A lot of them say, ‘I’ll rent a house and think about it later.'”
Of course, some Americans, especially young people, rent out their homes out of necessity.
Rising mortgage rates and a shortage of homes relative to buyer demand have kept home prices high and made it difficult for would-be buyers to afford a home. In some cases, renting is the only option.
Nearly three-quarters of potential homebuyers say barriers to affordability are their biggest problem, according to a Bankrate report, and 50% of young adults say home buying is only within the reach of the wealthy, according to a Credit Karma survey.
While wealth creation has been concentrated among homeowners in recent years, people are often pressured to buy even when it doesn’t make financial sense, said Michael Crow, director of financial planning at Edelman Financial Engines.
“Don’t buy a home just because you think it’s going to skyrocket in value,” he said. “You might think a home is an investment, but it’s not. A home is a place to live.”
“If you like the neighborhood, the schools and the proximity to friends and family, buy a home,” Crow says, adding that renting could be beneficial in this market, especially if you can avoid spending more than you earn.
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