Homeownership – Does it build wealth or not? The editorial in Sunday’s NYT had some good information for you to know and understand. First, yep, we already know it’s a good investment for long term financial security. Despite the downturn, when you move out of a rental, you have no assets yet the far majority of homeowners do have equity in their homes – and the longer held the better their equity.
The Times article references a recent study by researchers at the Joint Center for Housing Studies at Harvard University that analyzed the wealth factor of home owners. There is real opportunity for home owners to grow their personal wealth through;
- forced savings (do renters save the equivalent to a month of principal?),
- appreciation on investment (provided owners seek long term housing to weather fluctuations in the market),
- tax benefits (such as our Interest Income deduction)
- hedge against rent inflation
Honest about risks, such as costs associated with ownership, possible depreciation of investment due to poor timing or short term transfer needs, this study is very interesting. To read the full 56 page study or check out the succinct NYT article.
Excerpt from the report from Harvard’s Joint Center for Housing Studies:
To preview our conclusions, we find that while there is no doubt that homeownership entails real financial risks, there continues to be strong support for the association between owning a home and accumulating wealth. This relationship held even during the tumultuous period from 1999 to 2009, under less than ideal conditions. Importantly, while homeownership is associated with somewhat lower gains in wealth among minorities and lower-income households, these gains are on average still positive and substantial.In contrast,renters generally do not see any gains in wealth. Those who buy homes but do not sustain this ownership also do not experience any gains in wealth, but are generally left no worse off in wealth terms than they were prior to buying a home – although of course there may still be substantial costs from these failed attempts at owning in terms of physical and mental health as well asfuture costs of credit.We conclude that homeownership continues to represent an important opportunity for individuals and families of limited means to accumulate wealth.