New Study: Homeownership Doesn’t “Create Wealth”

Category: Industry News

A new study finds that, contrary to popular opinion, homeownership doesn’t significantly help homeowners build and amass wealth, reports Newsmax Finance. In this respect, there’s not always a big advantage between homeownership and renting. However, there are other reasons to become a homeowner, notes the article.

Stocks, bonds beat property for returns

“On average, renting and reinvesting wins in terms of wealth creation regardless of property appreciation, because property appreciation is highly correlated with gains in the traditional financial asset classes of stocks and bonds,” explained Ken Johnson, an economist at the College of Business at Florida Atlantic University and co-author of the report.

The article explains that renters who set aside money for asset investment can build more wealth over the long term, than can homeowners hoping to capitalize on property value gains. “When you assume that those monies are reinvested at a rate of return, renting, on average, wins in terms of wealth creation,” said Johnson. “Of course, many renters will not reinvest those monies and will instead use them for consumer goods, which is the least desirable option in terms of building wealth.”

Homeowners “forced” to save

While renters have the opportunity to realize better gains, the discipline required by homeownership may win out. “The forced savings of a monthly mortgage is a key reason why housing has served as an engine of growth for the middle class over the last 50 years,” said Nela Richardson, chief economist at Redfin.

Richardson argued that most Americans should try to buy a home rather than rent, due to its “embedded commitment” to save. “Owning real estate should be sold as a strategy to create a better set of risk-adjusted returns rather than create wealth alone,” she concluded.

Posted on: Friday, December 1, 2017