Jamie, 28, recently married her long-time boyfriend, Ben. They’ve always been careful with their money as a couple, sticking to a monthly budget and saving 15% of their salaries. They even opted for a small, simple wedding rather than racking up debt.
Jamie and Ben rented a small one-bedroom apartment when they moved in together five years ago. It made sense at the time. They were just starting out in their careers and liked to have some extra money for dining out and entertainment.
Now they’re thinking of starting a family and are not so keen on renting.
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Jamie has always wanted to own her own home and she doesn’t want to raise kids in a rental apartment.
But since current home prices and mortgage rates make it a “lousy” market for people looking for starter homes, Jamie’s wondering if it makes more sense to invest in the S&P 500 and save as much as possible while continuing to rent.
To rent or to buy?
U.S. home prices were up 1.3% in April compared to the same time last year, according to Redfin, selling for a median price of $438,108.
Mortgage rates remain relatively high, still below the 7% threshold, but averaging 6.83% in May, according to Freddie Mac.
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These factors may help explain why demand — often understood through existing home sales — “remains exceptionally low,” according to J.P. Morgan’s home price outlook for 2025,
“The U.S. housing market is likely to remain largely frozen through 2025,” J.P. Morgan Research reports. “Some growth is still expected, but at a very subdued pace of 3% or less.”
That leaves many potential homebuyers wondering when — or if — there’s going to be a good time to buy a new home.
Over the next two years, home prices may drop as housing supply grows, and mortgage rates could fall with Treasury yields, according to Morgan Stanley strategists.
But as the investment bank notes, that doesn’t necessarily mean “a return to the pre-pandemic era of more affordable mortgages and home prices.”
Meanwhile, 2025 has so far been a renter’s market, with rents falling as the supply of rental units grows. That’s thanks in part to the appearance of new units on the market as projects that started in the early days of the pandemic are completed.
However Realtor.com notes that this effect could be short-lived, as lower rent disincentivizes developers from building rental buildings. That could lead to a rental housing pinch.
And lower rent doesn’t mean “low”. Rents are still 14.4% higher than they were five years ago, according to Realtor.com.
Weighing the pros and cons
Both stocks and home equity can provide a path to wealth. Historically the stock market has provided a 10% average annual return, while the housing market has seen smaller gains.
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, which tracks residential real estate prices, shows a 3.4% annual return for March 2025.
There’s also a third option that combines both: real estate investment trusts (REITs), which allow you to invest in real estate like stocks.
But returns are not the only consideration. Stocks provide greater liquidity than real estate, yet the market can be volatile.
Here are some of the pros and cons of both home ownership and investing in the stock market that Jamie and Ben should consider.
Buying a home now
PROS. If Jamie and Ben buy a home now, they can start building equity immediately. If they wait to buy, housing prices and/or mortgage prices could come down, but there’s no guarantee.
Real estate comes with a number of benefits, such as property appreciation, tax advantages and the potential to bring in rental income.
Some people like the stability of owning their own home. If you rent and your landlord decides to sell, then you have to vacate your home and find another rental property.
CONS. Buying a home comes with both high initial costs (such as a down payment and closing fees) and ongoing expenses — from property taxes to utilities and unexpected repairs. These may add up to more than the cost of Jamie and Ben’s current rent.
Renting and investing in the S&P 500
PROS. If Jamie and Ben continue to rent and instead invest extra money in the S&P 500, they could see higher returns over time than with real estate.
They could put money they earn toward a large down payment for a home in the future. But the couple will need to be disciplined enough to actually invest that extra money and avoid lifestyle creep (where your spending increases as your income increases).
Renting gives them freedom and flexibility. If they want to move to another city or country, they won’t have to deal with the hassle of selling a property, and they’re not tied to a mortgage and property taxes.
CONS. The current state of stock market volatility could mean they have to delay homeownership even longer.
BOTTOM LINE. It’s a highly personal decision and there’s no ‘right’ answer. For Jamie and Ben, wanting to raise kids in a home they own may outweigh the desire to wait out the housing market.
They may want to discuss the matter with their financial advisor, as well as a mortgage broker and/or real estate agent.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
