Renting Isn’t “Throwing Money Away”

A client called me last month feeling down. She’s 34, does well at her job, and saves every month. But she still can’t afford a house right now. Her parents keep telling her she’s “wasting money” on rent. Friends who bought homes years ago talk about their home value like they made the smart choice. She asked me straight up: “Am I falling behind?”

Here’s what I told her — and what I want to tell you too. She’s not falling behind. In fact, the research shows that renting and investing the difference in a stock index fund can often build more wealth than owning a home, once you count all the costs of owning. If you’ve ever felt behind because you don’t own a home, let’s look at the real numbers.

Today’s mortgage costs, in plain terms.

Right now, the average 30-year mortgage rate is about 6.71%. On an $850,000 home with 20% down ($170,000), you’d borrow $680,000. That’s about $4,400 a month just for principal and interest. That doesn’t include property taxes, insurance, or repairs. At this rate, most of your early payments go toward interest, not toward building equity in your home.

That’s the part people forget when they talk about “home equity.”

The costs nobody talks about.

When people compare rent to a mortgage payment, they often leave out a lot. A recent study by Zillow and Thumbtack found that homeowners spend almost $16,000 a year on hidden costs — repairs, insurance, and property taxes. That number climbs even higher for a home worth $850,000. A new roof. A broken water heater. Yard work. None of that shows up in the price tag of the house. But it all comes out of your wallet every year.

What two real studies actually found.

Two different research papers looked closely at this question, and both point the same way.

The first was written by G. Donald Jud and Daniel T. Winkler and published in the Journal of Real Estate Practice and Education in 2005. They studied real home returns from 1978 to 2001. For a homeowner with no mortgage, they found an average yearly return of 11.81%. That sounds great at first. But most people don’t buy a home with cash — they use a mortgage. Once the researchers added a normal mortgage into the math, home returns fell between bonds and stocks — but with more risk than either one. In other words, even in the best case, a home with a mortgage didn’t beat the stock market. It landed in the middle, with more risk attached.

The second study is newer, and it’s a bit more sobering. Economist Stephen Snudden published a 2025 paper in Economic Inquiry that studied how much U.S. households’ actual returns bounce around from year to year. He found that even after removing normal, predictable differences between households, there was still a huge amount of unexplained swing in returns — about 9.49 percentage points of pure year-to-year noise. That’s a big number. It means the “average return” you hear quoted for housing hides a lot of ups and downs. Your own results could land far from that average, in either direction.

Why owning a home still feels like the smart move.

To be fair, owning a home does come with real benefits that don’t show up on a spreadsheet. It gives you stability, control over your space, and a kind of forced savings plan. Amy Arnott, a strategist at Morningstar, has pointed out that for people who grew up without much money, a mortgage can be a steady way to build wealth over time, almost without trying.

There are tax perks too. You may be able to deduct mortgage interest and property taxes. And when you sell your home, you can often skip taxes on up to $250,000 in gains ($500,000 for married couples). Plus, a 20% down payment lets you gain on the full value of the home, not just your down payment — something stocks don’t offer in the same way. Even Jud and Winkler’s own numbers show that owning a home can still earn you money. It just isn’t the stock-beating deal it’s often made out to be — and Snudden’s research shows how much your own results could differ from the “average” everyone talks about.

So what should you do?

If you can comfortably afford a home, plan to stay for 7 to 10 years, and want the stability a mortgage brings, buying can still make sense for you. That’s a smart, well-thought-out choice — not a mistake.

But if buying isn’t in the cards right now, or renting simply makes more sense for you, here’s what I want you to remember: renting does not mean you’re falling behind. You may actually come out ahead — but only if you take the money you’re not spending on a down payment and closing costs, and you actually invest it.

That last part matters most. This whole idea only works if you invest the money you save by renting, instead of spending it. Here’s a simple way to do that:

• Take the money you’d put toward a down payment — in this example, $170,000 — and put it into a brokerage or retirement account instead.
• If your rent costs less than a mortgage plus taxes, insurance, and repairs would (often $1,000 to $2,000 less per month on an $850,000 home), invest that gap every month like a bill you pay yourself.
• Put the money in a low-cost index fund and leave it there. This only works if you stay invested through the ups and downs, not if you try to guess when to buy and sell.

The bottom line: The idea that renting “wastes money” while owning “builds wealth” is one of the most common myths in personal finance. Even the study that paints homeownership in the best light — Jud and Winkler’s own numbers — shows that a home with a mortgage lands between bonds and stocks, with more risk than either. And newer research shows just how much your own results could differ from that “average” number. Right now, with mortgage rates near 6.7% and home prices where they are, renting and investing the difference isn’t a backup plan. It’s a real, proven way to build wealth.

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