Every three years the Federal Reserve conducts a Survey of Consumer Finances in which they collect data across all economic and social groups. The latest survey, which includes data from 2010-13, reports that a homeowner’s net worth is 36 times greater than that of a renter ($194,500 vs. $5,400).
In a recent Forbes article the National Association of Realtors’ (NAR) Chief Economist Lawrence Yun predicts that in 2016 the net worth gap will widen even further to 45 times greater.
The graph below demonstrates the results of the last two Federal Reserve studies and Yun’s prediction:
Put Your Housing Cost to Work For You
Simply put, homeownership is a form of “forced savings.” Every time you pay your mortgage you are contributing to your net worth. Every time you pay your rent, you are contributing to your landlord’s net worth.
The latest National Housing Pulse Surveyfrom NAR reveals that 80 percent of consumers believe that purchasing a home is a good financial decision. Yun comments:
“Though there will always be discussion about whether to buy or rent, or whether the stock market offers a bigger return than real estate, the reality is that homeowners steadily build wealth. The simplest math shouldn’t be overlooked.”
If you are interested in finding out if you could put your housing cost to work for you through homeownership, meet with a real estate professional in your area who can guide you through the process. For more information, please contact The Olear Team today!
We often promote homeownership over renting when a family is ready, willing and able to purchase. There are both financial and non-financial benefits to owning a home of your own. Based on the headlines below, many news outlets agreed with us after they reviewed a recent report from the Harvard Joint Center for Housing Studies and Enterprise Community Partners.
The study states that the number of households spending 50 percent or more of their income on rent is expected to rise by over ten percent in the next decade. They concluded:
“Overall, this white paper projects a fairly bleak picture of severe renter burdens across the US for the coming decade.”
What do other experts think of the report? You can tell by the headlines they chose to introduce their stories:
“Renters, get ready to take it on the chin” – CNBC
“The rent crisis is about to get a lot worse” – Bloomberg Business
“Renters will continue to struggle for the next decade” – World Street Journal
“Why the renting crisis could be about to get a lot worse” – Fortune Magazine
“Soaring rents are a problem that will only get worse” – Business Insider
“High rents are here to stay” – The Real Deal
If you are thinking about buying a home and are financially positioned to do so, now may be better than later.
According to the latest Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index,homeownership is a better way to produce greater wealth, on average, than renting.
The BH&J Index is a quarterly report that attempts to answer the question:
Is it better to rent or buy a home in today’s housing market?
The index examines that entire U.S. housing market and then isolates 23 major markets for comparison. The researchers use a “’horse race’ comparison between an individual that is buying a home and an individual that rents a similar quality home and reinvests all monies otherwise invested in homeownership.”
Ken Johnson, real estate economist and professor at Florida Atlantic University, and one of the index’s authors states, “The U.S. as a whole is still in clear buy territory. The cities of Cincinnati, Chicago, Cleveland and New York City are deep into buy territory.”
Miami and Portland had been inching closer toward renting being the better option but have “pulled back from the edge.” Johnson goes on to say, “that’s a good sign for home pricing as it suggests prices are going to level off in these metro areas.”
Buying a home makes sense socially and financially. Rents are predicted to increase substantially in the next year, so lock in your housing cost with a mortgage payment now. For more information, please contact The Olear Team today!
There are many benefits to homeownership. One of the top ones is being able to protect yourself from rising rents and lock in your housing cost for the life of your mortgage.
The National Association of Realtors (NAR) released their findings of a study in which they studied “income growth, housing costs and changes in the share of renter and owner-occupied households over the past five years in metropolitan statistical areas throughout the US.”
Don’t Become Trapped
The study revealed that over the last five years a typical rent rose 15 percent while the income of renters grew by only 11 percent. If you are currently renting, this disparity in growth could get you caught up in a cycle where increasing rents continue to make it impossible for you to save for a necessary down payment.
The average renter in the United States pays 30 percent of their income on housing compared to that of a homeowner who can expect to spend 15 percent.
In many metro areas the percentage of income spent on housing is even higher and continues to rise every year. Like in San Francisco, CA, where the average renter spends 59 percent of their monthly income on housing or nearly 65 percent in Boston, MA.
Homebuyers who purchased their home over the same five-year period locked in their housing costs and were able to grow their net worth as home values have increased and their mortgage balances have gone down.
Know Your Options
Perhaps, you have already saved enough to buy your first home. HousingWirereported that analysts at Nomura believe:
“It’s not that Millennials and other potential homebuyers aren’t qualified in terms of their credit scores or in how much they have saved for their down payment.
It’s that they think they’re not qualified or they think that they don’t have a big enough down payment.” (emphasis added)
As we have reported last week, over 60 percent of Millennials who recently bought a home put down less than 20 percent; 36 percent put down less than 5 percent. Your dream home may be more attainable than you ever imagined!
Don’t get caught in the trap so many renters are currently in. If you are ready and willing to buy a home, find out if you are able. Have a professional help you determine if you are eligible to get a mortgage.