The Death Pledge That Built America's Wealth

Good morning, and welcome to your daily HigherIQ briefing. It's Wednesday, February 4th. The word "mortgage" comes from Old French. Mort means death. Gage means pledge. A death pledge. Cheerful, right? The term dates back to the 13th century, and it referred to the deal dying — either when the debt was paid off or when the borrower failed to pay. Eight centuries later, about 84 million Americans are locked into one of these death pledges, and most of them will tell you it's the best financial decision they ever made. But is it? Today we're going deep on a question that affects more American wealth than almost any other single decision: should you buy a home, or rent one? The actual math is far more interesting — and far more counterintuitive — than most people realize. Let's start with the headline number. According to ATTOM's year-end 2025 report, released just last week, the typical American home sale generated $118,710 in gross profit — a 49 percent return on investment. That's down from $124,500 the year before, and well off the 2022 peak of $126,000, when sellers were earning 62 percent margins. So profits are declining for the third straight year, but $118,000 in profit still sounds phenomenal, right? Here's where it gets interesting. Here's what most sellers don't see coming. A 2025 survey from Clever Real Estate found that the average seller expected to spend about $18,500 getting their home sold. The actual average was $67,000 — nearly a quarter of them went into debt just to close the deal. The HigherIQ take: start with that $118,000 in gross profit. Subtract $67,000 in selling costs. Then subtract eight years of property taxes, insurance, and maintenance. That six-figure headline profit quietly becomes a five-figure one. It doesn't disappear, but it shrinks far more than most people expect — and 75 percent of sellers told Clever they would have made different decisions if they'd known the true cost upfront. Now, what about the monthly math? Bankrate's 2025 Rent vs. Buy study found that renting is now cheaper than buying in all 50 of the largest U.S. metro areas. Not most of them. All of them. The average monthly mortgage payment, including property taxes and insurance, runs about $2,768. Average rent sits around $2,000. That's a 38 percent premium to buy. And that gap is growing — it widened in 38 of those 50 metros over the past year. To put the speed of this shift in context, an InvestorsObserver analysis found that in 2021, 39 of those 50 metros actually favored buying. By 2025, every single one had flipped. Miami's mortgage payments alone rose 219 percent over that span. San Francisco's more than doubled. So renting is cheaper, and sellers aren't making as much as they think. Case closed, right? Renting wins? Not even close. And this is where the analysis gets genuinely fascinating. The Federal Reserve's Survey of Consumer Finances tells a story that should stop every renter in their tracks. The typical American homeowner has a net worth of $430,000. The typical renter? $10,000. That's a 43-to-one ratio. And since 2022, the gap has actually widened — homeowner wealth grew 8.5 percent while renter wealth shrank by nearly 4 percent. The gap isn't closing. It's accelerating. Now, skeptics will rightly point out that correlation isn't causation. Wealthier people are more likely to become homeowners in the first place. True. But the mechanism matters, and the mechanism is leverage. This is the HigherIQ take most people miss. When you put 20 percent down on a $400,000 home, you're investing $80,000 to control a $400,000 asset. That's five-to-one leverage. If the home appreciates 5 percent, you don't make 5 percent on your money — you make 25 percent. You cannot get that kind of leverage in the stock market. Brokerages cap margin lending at 50 percent and can force you to sell at a loss if things go south. No mortgage lender calls you up and says, "Your house dropped 10 percent — sell it by Friday." That asymmetry is enormous. A Texas A&M Real Estate Research Center study examined 153 different holding periods between 2000 and 2016, comparing the internal rate of return from homeownership against renting and investing the savings in the S&P 500. Under real-world conditions — meaning actual taxes, actual transaction costs, actual maintenance — homeownership beat the stock market 63.4 percent of the time statewide, and 85 percent of the time in Austin. Crucially, the researchers found that the single biggest factor tipping the scales was the capital gains tax exemption on primary residences. When you sell your home, the first $250,000 in profit is tax-free if you're single, $500,000 if you're married. Sell a stock portfolio with the same gain and you're handing 15 to 20 percent of it to the IRS. That tax shield is, in the researchers' words, what gives homeownership "a tremendous edge." But pure appreciation tells the opposite story. Peter Earle, an economist at the American Institute for Economic Research, notes that stocks have historically returned 8 to 12 percent annually, while real estate appreciation runs 2 to 4 percent. The S&P 500 has been one of the greatest wealth-creation engines in human history. So how does homeownership keep winning? Two words: forced savings. Think about what a mortgage actually is. Every month, a portion of your payment goes toward principal — essentially a forced transfer from your checking account into an illiquid asset you can't easily spend. It didn't earn a spectacular return, but it exists — which is more than most Americans can say about their theoretical investment plans. The intention to invest the difference between rent and a mortgage is almost universal. The follow-through almost never happens. And it's not just the forced savings structure. It's what happens — or more accurately, what doesn't happen — when markets crash. Here's one of the most surprising findings in all of investment research. An online brokerage studied the performance of its most successful client accounts, looking for common traits. Turns out, the top-performing accounts belonged to people who had died. They literally couldn't panic-sell. And that's the behavioral genius of a mortgage. You can't log into an app at 2 AM and sell your kitchen because the housing market had a bad week. There's no daily ticker broadcasting your home's value. During the 2008 crash, stock investors watched their portfolios in real time and many sold at the bottom. Homeowners watched their values fall too — but they still cooked dinner in their kitchens, still slept in their bedrooms, and most of them rode it out. The utility of a home provides a psychological buffer against panic that stocks simply cannot match. So where does this leave someone actually trying to make a decision right now? The honest answer is: it depends on exactly three things. First, how long you're staying. On a $325,000 home at today's mortgage rates around 6.5 percent, the breakeven point against renting is roughly 14 years. Drop that rate to 4 percent and it shrinks to about three years. Interest rates are, far and away, the biggest variable in the equation. Second, your local price-to-rent ratio. The national median is about 14 — meaning it costs 14 years of rent to buy the equivalent home. In places like San Jose and San Francisco, that ratio is so high that renting and investing the difference is almost certainly the better financial play for anyone who isn't staying a decade-plus. In Rust Belt cities like Cleveland and Detroit, the gap between renting and buying is so narrow that ownership math works quickly. A quick rule of thumb if you want to run the math yourself: take the home's value, multiply by 5 percent, and divide by 12. That's your monthly breakeven. If you can rent something comparable for less than that number, renting is likely the better financial move. On a $400,000 home, that threshold is about $1,667 a month. Below that, rent and invest. Above that, buying starts to make sense. Third — and this is the one nobody wants to talk about — your own discipline. If you would actually invest the difference between rent and a mortgage payment every single month, in a diversified index fund, and never touch it for 15 years, renting can absolutely win. But the Fed's data tells us what most people actually do with extra cash: they spend it. That said, the risks are real. Nearly 6 percent of today's sellers are at risk of selling at a loss, according to Redfin, with Austin leading the pack. But for context, during the 2008 crisis roughly half of all sellers were underwater. We're nowhere near that. The bottom line is this: homeownership is not the slam dunk your parents said it was, but it's also not the trap that the "renting is winning" headlines suggest. It's a leveraged, tax-advantaged, behaviorally-enforced savings vehicle that happens to also give you a place to live. And for the roughly 71 percent of renters who tell the New York Fed they'd prefer to own — the math says the dream is still worth chasing. Just go in with your eyes open, your calculator out, and a realistic budget for what selling will actually cost you someday. It's more than you think. Stay informed, stay curious, and it turns out the death pledge isn't so deadly after all — as long as you read the fine print before you sign it. Have a great Wednesday.