Many Americans still see homeownership as a pillar of the American Dream, and buying a home is first on their list of financial priorities. But renting has plenty of perks, from flexibility to lower risk to lower monthly payments (sometimes). Without getting too mushy about it, who is happier at the end of the day, homeowners or tenants? There are ways in which each are better off in the race for contentment, optimism, resilience and general health, so here are how each shake out.
What Makes Renters Happier
Mo’ Mortgage Mo’ Problems – Mortgages can be useful ways to leverage buying power, but they are also (rather large) debts that can wreak havoc if the borrower defaults on their loan payments. Foreclosure is a far more damaging process to credit scores than eviction is, and mortgage lenders can go after defaulting borrowers for a deficiency judgment for all the money the bank lost because the borrower defaulted.
Further, higher mortgages come with higher stress, according to a Canadian study from 2004. But the same study found that the least stressed people were owners with no mortgage, so consider mortgage and rent-related stress as being on a kind of a stress spectrum.
Time Spent with Friends – A study done by University of Pennsylvania professor Grace Wong Bucchianeri found that homeowners spent 4-6% less time with friends and neighbors than their renting counterparts. What is less clear is whether age or housing density may be seeping into the data, as tenants tend to be younger and live in more urban areas with easier access to social outlets. But the research does challenge the conventional research that homeowners lead more “satisfying” lives.
Similarly, Bucchianeri’s research also showed renters had less “house pain”, as she puts it: less stress and negative emotions stemming from their housing.
All You Need Is Love – Well, that and a roof overhead, food, etc, but a classic study by the University of Massachusetts found that married couples who rented their home had fewer verbal wrestling matches and more bedroom wrestling than their home-owning counterparts. But here's a twist: tenant and homeowner husbands alike reported working the same number of hours around the house, suggesting home-owning wives may be picking up the additional work involved in homeownership – and none too pleased about it.
Mobility/Flexibility – At risk of stating the obvious, the flexibility of moving at short notice does matter. Consider both the tangible needs, such as moving for employment (see this article on the correlation between homeownership and unemployment rates) and intangibles in life such as a feeling of freedom and the fulfillment that comes from living where desired.
What Makes Homeowners Happier
Wealth! – The average homeowner is wealthier than the average tenant (surprised? No? Not at all? Us neither). But what may stir a little more awe is the degree of difference: homeowners are 34.2 times wealthier, to be exact, having an average net worth of $174,500 compared to $5,100 according to the Federal Reserve. Granted, there is a chicken-and-egg argument that can be made – who says homeowners are wealthier because they are homeowners, versus it simply be easier to buy a home if you already have more money? But the fact is real estate ownership creates wealth in several ways. The average homebuyer only puts down 4% of the purchase price in cash, but the entire value of the property appreciates (usually, at least). Mortgaged real estate ownership also effectively forces the owner to “save” a certain amount of money each month, by paying down the mortgage balance and therefore increasing their net worth.
Health – Adjusting for age, socioeconomic status, etc, homeowners reported better health than renters did. The objective data on health was not as clear, but self-perceived health is meaningful in and of itself. But there is a catch – only homeowners who were current on their mortgage reported being in better health.
Community Involvement – Long trumpeted by Realtors looking for clients, there is some evidence that homeowners are more involved in religious and non-profit organizations, vote more, and generally participate more in community activities. This may more reflect homeowners’ tendency to remain in each home longer than renters do, and thus set down deeper roots.
Bottom Line: The Feeling of Financial Freedom
People who feel like they can do most of the things they want, whether these are vacations, or eating out at restaurants, or living in the neighborhood they prefer and sending their children to the schools they prefer, are simply happier people. Whether renting affords someone this sense of financial freedom, or whether homeownership does, depends on the person and their finances. An old rule of thumb may prove useful here however: people who plan on moving into a home and staying less than seven years should lease, while those who plan to stay seven years or longer should buy, because it takes about seven years for the average home to appreciate enough to handily reimburse the buyer for their closing costs.