Why Millions of Households Making Six Figures Are Still Renting

Three million households making over $150,000 per year have no choice but to rent.

In today's tight housing market, millions of households making six figures are still renting. The high cost of homeownership, combined with an increasingly competitive rental market, has made it difficult for these higher-income earners to find a suitable home that fits their needs. Let's take a closer look at why so many six-figure households are still renting.

High cost of homeownership

The cost involved in homeownership is one of the main reasons why so many six-figure households are opting to rent instead. With home prices on the rise in many areas, and mortgage interest rates doubling in less than a year, buying a home can be incredibly expensive for some people. This is especially true for those who may not have the required down payment or who have less-than-perfect credit scores. Even if these individuals qualify for a loan, they may find that they cannot afford the monthly payments associated with owning a home.

According to the Fed, the median sales price of houses sold in the United States during Q4 2022 was $467,700 -- a number that has increased by 45% since the start of COVID-19, due to the rise in demand and limited supply. Mortgage rates in the beginning of 2022 were around 3.22% and currently hover at 6.60%. The monthly mortgage payment for a $500,000 home is now $1,000 more due to mortgage rates more than doubling in a year. Even among more affluent earners, this can make purchasing a home prohibitively expensive.

Tight housing market

Another factor driving demand for rental properties is the tight housing market in many parts of the country. The combination of low inventory and high demand has led to skyrocketing prices in some areas, making it difficult for even those with significant incomes to find a suitable place to live without breaking their budgets. As a result, more and more people are turning to rentals as an option that is both affordable and accessible.

As higher-income professionals are forced to rent, the increasingly competitive rental market is unfortunately making it difficult for mid and lower-income earners to find suitable homes to rent. With so much competition from other renters, landlords can afford to be picky about who they choose as tenants -- which means only those with good credit scores and stable employment histories will be able to secure a lease on desirable properties.

Preferences matter

In addition to financial factors, preferences also play an important role in determining whether individuals choose to buy or rent. For example, affluent renters may not want to commit to purchasing a property until they have had time to explore all their options. Similarly, those who prefer more flexibility may decide that renting is ultimately better for them, because it offers freedom from being tied down to one location.

Even though homeownership does come with certain tax benefits that renters don't get access to (such as deducting mortgage interest payments), renting still offers advantages that make it attractive for some high earners. For instance, renters do not have to worry about paying for homeowners insurance, maintaining landscaping, or other upkeep tasks associated with homeownership. Many maintenance tasks are taken care of by the landlord or management company, and renters benefit from being able to move quickly should their circumstances change suddenly.

The combination of rising home prices, higher mortgage rates, and tight housing markets has made it difficult for even high-income earners to buy homes at reasonable prices. As a result, millions of households making six figures are still choosing to rent rather than buy -- at least until conditions improve or they can afford the cost of homeownership. This may change in the future, as home prices have begun to come down. Until then, however, renting appears to be an attractive option for many people looking for an affordable place to live without breaking their budget.