Go ahead and buy that house, your retired self will thank you

Traditional financial advice typically tells savers to put retirement first — even before homeownership. That's because over the long-term, the stock market tends to outpace real estate and there are tax advantages to putting money in a retirement account.

But retired homeowners are in a much better financial position than their peers who have rented. So it might make more sense to encourage younger savers to prioritize buying a home, despite the very real challenges of high home prices and interest rates.

Millennials have higher average 401(k) balances than Generation X did when they were the same age, but they are not any better off financially, said Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute. A lot of that has to do with being less likely to own a home. That doesn't bode well for later on.

"The benefits of homeownership can't be overstated in retirement," said Copeland.

For older homeowners and older renters with similar incomes, there's a significant gap in net wealth. A big portion of that is due to home equity, but homeowners also have more nonhousing wealth, too. Homeowners age 65 and over in the highest income quartile had a net wealth of close to $1.3 million compared to $334,150 for renters, according to Harvard University's Joint Center for Housing Studies.

There is a budgeting stress that can come with renting. Studies show that housing accounts for a much bigger chunk of total expenditures for older renters than for owners. This is even more apparent for low- and middle-income households. In turn, older renters tend to have more credit-card and health-care related debt, and less cash savings, than homeowners.

Plus, the unpredictability of rent increases can wreak havoc when retirees are on a fixed income. Sure, homeowners may have to deal with property taxes and maintenance, but those seem relatively minor considering the double-digit jump in rents during the past year.

Even before the pandemic, about 55% of rental households headed by someone age 65 and over were cost-burdened, meaning more than 30% of their income went to housing costs, data from Harvard's housing center show.

Given the importance of homeownership to a secure retirement, it's especially worrisome that the homeownership rate among older people has been declining, and even more precipitously among people of color. In 2004, 81.7% of households headed by 50-64 year-olds in the U.S. owned a home. That number was just 75% as of last year, setting this group up to enter retirement age with lower homeownership rates than those of the previous generation at the same age, according to Senate testimony by Harvard's Jennifer Molinsky.

You do need to save at least some money for retirement even while you're prioritizing a down payment. If your employer offers a 401(k) match, make sure you contribute at least enough to take advantage of that free money.

It's also important to remember that the benefits of homeownership in retirement are greatest for those who have paid off their loans. Homeowners who enter retirement still paying off a mortgage — something more retirees are doing than in previous years — tend to spend more each month on housing costs than renters.

For many prospective buyers, rising mortgage rates and high home prices are delaying homeownership. Given how critical a home can be to a secure retirement, let's hope today's sidelined buyers don't give up on it completely. Maybe that means buying a smaller home, or even borrowing from your 401(k) — but it'll be worth it.