The high cost of buying a home means that many 20- and 30-somethings are re-evaluating traditional personal-finance advice that assumed homeownership to build wealth

For many young adults, buying a home can feel out of reach.

When Tanisha Saunders graduated from college eight years ago, she felt optimistic that she was on her way to achieving an American dream that included homeownership.

She took some steps toward that goal, including researching programs that help first-time home buyers. But in recent years, Saunders, 36, says she has "freed" herself from the idea of becoming a homeowner.

"The price of homes is so expensive and I just don't see it as a part of my reality," she said. And it's not just the expense she's concerned about.

Traditionally, homeownership has been associated with stability. But with insurance premiums and property taxes rising, the prospect of unpredictable maintenance costs and the risk of climate change affecting properties in Los Angeles, where Saunders lives, owning a house seems risky, she said. A sense of assurance is crucial to her, in part because she has experienced homelessness and housing insecurity.

Tanisha Saunders used to feel optimistic about buying a house. But recently, she said, she's "freed" herself from the idea of homeownership.

For now, Saunders is living in a two-bedroom apartment that's paid for by her employer as part of the compensation for her job as a property manager. That has helped her avoid the stress of elevated rents, but she still feels pressured by rising costs for groceries, gas and other essentials. Saunders said she and her friends lament how challenging it has become for them to buy a home when compared to their parents or even their older siblings.

"It actually feels like insanity to think about homeownership in the state of where we are as a nation and the unaffordability of basic goods," she said. "The landscape has changed."

Saunders is not wrong to feel like it's a historically difficult time to buy a house. The median U.S. home price now hovers around five times the median income; historically, that ratio has been closer to 3 to 1. The share of 30-somethings who own their homes has dropped more than 5 percentage points in the past 20 years.

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These trends collide with longstanding financial advice for 20- and 30-somethings: Sock away funds for a down payment and buy a house, both as a place to live and as your main source of wealth.

With homeownership increasingly out of reach, what does that mean for the long-term finances of people who are renting indefinitely or living with family because they're locked out of this traditional wealth-building tool?

What missing out on homeownership can mean for building wealth

Naomi Mortensen has always had it in her head that she wants to own a home. But so far - between rent, student loans, utility bills, groceries and saving for emergencies - she and her partner haven't been able to put enough money away for a down payment.

Mortensen, 30, and her partner are part of a generation of 20-, 30- and even 40-somethings who increasingly view homeownership as unattainable. The factors fueling their challenges in affording a home are complex and stretch back decades, according to experts. Following the housing crash and the 2007-09 recession, developers pulled back from building, squeezing the supply of homes. In addition, lenders tightened credit standards, making it more difficult in many cases for younger buyers to qualify for a mortgage.

For Naomi Mortensen and her partner, saving for a down payment has been a challenge between rent, student loans, utilities and other bills.

A decade later, during the pandemic, home prices skyrocketed, and in the years since, interest rates have risen as well. In a typical cycle, rising rates would push prices down, but they haven't yet dropped significantly. The combination of high home prices and elevated interest rates has put would-be home buyers in a bind. Roughly 29% of 18- to 34-year-olds say they plan to buy a home in the next five years, according to Gallup. That's down from 57% in 2015.

"Historically, it's the best way for middle-income Americans to build wealth," Mark Zandi, chief economist at Moody's Analytics, said of homeownership. "It's just not the case at the moment."

Meanwhile, young adults are paying high rents, making it difficult to save for a down payment.

"Renting forever doesn't invoke a lot of confidence in our future finances," Mortensen said. "It does cause anxiety." Even as the housing market has cooled in recent months in the Washington, D.C., area - where the couple wants to stay to be close to their jobs - the median list price is about $565,000. Right now, that's out of reach for Mortensen and her partner, who both work at nonprofits.

Still, Mortensen sometimes wonders if she and her partner would feel comfortable buying a home even if they did have the money. Watching prices and interest rates climb so dramatically in recent years has her worried about future volatility in the housing market, which could put any investment in a home at risk. In addition, owning a home would lock up their money for the long term, making it difficult for them to move for work or to care for aging family members.

"Is it even a safe time to put so much stock in such a long-term asset that, yes, may appreciate - but who knows if we'll reach that time where it may appreciate?" she said.

In the U.S., homeownership has historically been one of the most accessible paths for generating wealth - but it's not a sure thing. In 2022, the median homeowner's net worth was roughly 40 times the median renter's. But that overall trend masks the fact that while some individual owners see huge asset appreciation, in other cases, home values grow at the rate of inflation, and some owners actually lose money on their house. It also papers over how homeowners may be bringing certain attributes to the process that make it more likely that they'll build wealth, like higher incomes and a propensity to save.

"Buying a house isn't guaranteed to make you rich, or even to break even," said Jenny Schuetz, vice president of infrastructure and housing at Arnold Ventures, a philanthropic organization focused on research and policy. "You can lose everything you have by being a homeowner, and so renting isn't necessarily the worst outcome."

A study by economists at Tufts University on the effect that homeownership has on the wealth trajectory of low-income households illustrates the importance of timing. The researchers followed the finances of renters in two cohorts, one of which started renting in 1984 and the other in 1999. Eventually, some renters became homeowners, which allowed the researchers to better understand how the purchase affected their ability to build wealth.

Those low-income households that began renting in 1984 and then bought a house saw their wealth go up on average compared with the low-income households that remained renters. But the households in the 1999 cohort that subsequently bought a house saw their wealth go down on average compared with the low-income households that remained renters, because they went through the 2007-09 recession.

Many in the second cohort had mortgages with relatively high interest rates and then ended up in foreclosure, said Jeffrey Zabel, one of the authors of the paper. "And if you don't have a house, you don't have any wealth," he said.

"It depends on what happens to the housing market. You can't really predict it," Zabel added.

The high prices and high interest rates of the current period mean it's harder for people to afford homes. And home values - and therefore, the wealth that homeowners can accumulate from their houses - have little room to grow, Zandi said.

"Renting feels more attractive than owning a home at this point for most people in most parts of the country," Zandi said.

Some look beyond homeownership to achieve financial security

Some young adults are looking at this particularly challenging housing market and deciding to build wealth in other ways. From the time Patrick Yaghoobians was 20 years old, he's been putting aside money to buy a home. But recently, he decided to invest those funds in something else: launching his own financial-planning business.

"Even though I had a decent amount saved, it was nowhere near what was needed, especially in Southern California, to buy a property," said Yaghoobians, who is now 30. Before he started his business, Yaghoobians had saved up about $45,000. "I had to make a conscious shift in what that bucket of money was for, and moved it from a housing fund to now a business fund," he said.

Patrick Yaghoobians decided to take a pot of money he was saving to buy a home and invest it in his business instead.

Yaghoobians views that decision as an investment in himself. In addition to pouring money into his business, he's making sure to put away enough funds for retirement, and he's saving on housing costs by living with his parents. Although he once thought owning a home would be a way for him to achieve independence and build wealth, Yaghoobians has changed his calculus.

"It just feels like homeownership is not a top priority anymore, because it's kind of gotten so out of reach for our generation," he said.

A major reason homeownership underpinned wealth for previous generations is that a mortgage can function as a sort of forced savings account. Part of each mortgage payment typically increases the owner's stake in the home.

"That's probably the most important channel through which buying a home builds wealth," said James Choi, a professor of finance at the Yale School of Management, who has challenged traditional personal-finance advice in his research.