“As a means to building wealth, there is no practical substitute for homeownership.”
In late November, the New York Times published an editorial on homeownership and wealth creation that revisits an attitude Americans have held dear for centuries: owning a home is the best way to build wealth.
The 2008 housing bust changed things, and for many Americans renting became more sensible that owning a home. The rate of homeownership declined from its peak of nearly 70 percent in 2004, to a 20-year low of 64.3 percent. Just one year ago, renting remained the practical standard as the number of owner-occupied homes remained stagnant, while the number of homes occupied by renters increased by nearly 25 percent
This latest New York Times editorial, however, confirms a strong recovery in the housing market, not just in sales and prices, but in consumer and investment expert confidence.
The Times editorial offers plenty of fact-based tidbits that sometimes read like an inspirational greeting card for new homebuyers and homeowners:
“Homeownership long has been central to Americans’ ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of homeowners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth.”
Many points made in the editorial coincide with new research from the Federal Reserve Survey of Consumer Finances, which finds that the average homeowner’s net worth ($194,500) is 36 times greater than he net worth of a renter ($5,400). One reason for this enormous net worth gap is the concept of forced savings created by the responsibility of having a mortgage payment, which is explained by the Times as such:
“Homeownership requires potential buyers to save for a down payment, and forces them to continue to save by paying down a portion of the mortgage principal each month.”
“Even in instances where renters have excess cash, saving a substantial amount is difficult without a near-term goal, like a down payment. It is also difficult to systematically invest each month in stocks, bonds or other assets without being compelled to do so.”
The message is clear; if you are renting a home and have the means to purchase, it’s probably time to find a professional realtor who can answer your questions and explain why now is the time to begin building your own wealth by making an investment in the American dream.
Federal Reserve Survey of Consumer Finances