Stats Say Homeowners’ Net Worth is 45 Times Greater Than Renters’
If simple math is followed, home buying eventually makes a lot of sense.
Talk to homeowners about the process of buying, and most of them liken the experience to a painful childbirth. It’s excruciating, it tests your patience—but once you do it, it’s the best thing that’s ever happened to you. When it comes to the debate of buying versus renting, I’m old school. You won’t need to convince me of the advantages of buying. When I was a child, my dad, a finance guy simplified it for me, “Imagine putting away chunks of money every month, now imagine it’s towards someone else’s home—that’s renting.” So, if you’re trying to convince me of the perks of buying, you’re preaching to the choir.
Looks like my father may have been right about this one. His financial beliefs align with the Survey of Consumer Finances conducted by the Federal Reserve. It reports that a homeowner’s net worth is estimated to be 45 times greater than that of a renter in 2016. Like, Hallelujah! The latest survey, which includes data from 2010-2013, says that the homeowner’s net worth was 36 times greater than that of a renter.
According to a Forbes article, “Based on what has happened since 2013 and projecting a conservative assumption of what could happen next year to home prices if we see only 3% price growth, the wealth gap between homeowners and renters will widen even further. The Fed is likely to show a figure of $225,000 to $230,000 in median net worth for homeowners in 2016, and around $5,000 for renters. That is, a typical homeowner will be ahead of a typical renter by a multiple of 45 on a lifetime financial achievement scale.”
It seems like buying and renting has much to do with the investor’s attitudes towards returns. A lot of investors are drawn toward making a quicker buck from pumping money in stocks and bonds. Milo M. Benningfield, a San Francisco-based financial planner, compares renting and buying to “Apple versus Google.” In a recent New York Times story, he said, “Somebody’s going to be right in terms of higher returns in the future, but we can’t know in advance who that will be—and it will be tough to quantify how much risk was taken along the way.”
However, if simple math is followed, home buying eventually makes a lot of sense. Conventionally, a lot of home buyers take out a 30-year fixed-rate mortgage to buy a home, which results in zero-mortgage after the 30-year period. The home price growth over that period would be the equity the homeowner would’ve amassed.
In an ideal world we would all be homeowners. Or at least, I would. Yours truly is on the 5th page of a 10-page application for renting an apartment in a co-op and 2 pages short of screaming, ‘Screw this, let’s buy.’ Buying also safeguards you from rising rents, while fixed mortgage prices stay constant. Investing in a home is also seen as a forced saving. Every time you pay the mortgage, you’re contributing to your net worth.
But one can’t simply gloss over the fact that buying a home is a huge lifetime commitment. And there are a lot of upfront costs that could dip into your savings. Especially in New York City, where homes are so expensive, no one can afford to put that much down. “And once you own, it’s all you. Renting is convenient when it comes to maintenance issues,” Adds Molly Williams, who just bought a townhouse in Riverdale after renting in the Village for nine years.
You’d think all these aspects would scare away young buyers? Not really. With all these hurdles, it may come as a surprise that Millennials are actually the ones in favor of buying. The Generation Y has made up the largest share of buyers in annual surveys conducted by the National Association of Realtors. Around 37% of buyers in 2015 were millennials with a median age of 30. If Forbes’ research is accurate, “80% believe that purchasing a home is a good financial decision.” That’s a reassuring number—especially since it drives a wise decision. Ultimately buying has everything to do with your own situation and subjective to your own needs. To be better-informed try rent or buy calculator that helps you decide what option suits you better. For now, it looks like the scale tilts in favor of buying by any objective standard.
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