Home ownership in necessary for wealth creation. Owning is better than renting because, over time, the net worth of homeowners significantly outpaces that of renters.
Researchers at the Joint Center for Housing Studies at Harvard University recently analyzed the reasons why the net worth of homeowners has outclassed that of renters, who- as a group – tend to accumulate little, if any, wealth.
The study found that the BIG reason is that 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.
Conversely, renting offers the potential for comparable wealth building only if renters invest an amount equal to a down payment plus any savings from renting. Research notes that most renters do not follow that path. Even in instances where renters have excess cash, psychologically, saving a substantial amount is difficult without a near-term goal. It is also difficult to systematically invest each month in stocks, bonds, retirement plans or other asset creation methods without the motivation.
Since the housing bust, renting has been the preferred way to go among young adults – who in earlier decades would have been first-time home buyers. The rate of homeownership has declined from a peak of nearly 70% in 2004 to a 20-year low of 64.3% in the wake of the Great Recession. Since then, the number of owner-occupied homes has barely budged, while the number of renter-occupied homes has increased by nearly 25%.
If the Baby Boomers, who were good savers, are having problems making ends meet, what’s to become of the Millennials?
Contact us and let us grow your real estate portfolio – Jodi Summers and the SoCal Investment Real Estate Group @ Sotheby’s International Realty – email@example.com or 310.392.1211.
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