Buying a house is more than simply having some extra space all to yourself – it also serves as an investment. Even with the high costs involved in real estate purchases, that investment is still paying off for most American homeowners…
According to two recent studies, homeowners tend to drastically outpace renters in terms of net wealth and returns on the investment. One comes from the U.S. Census Bureau: As of December 2013, the last time this data was analyzed, the median net worth of U.S. homeowners came in at $199,557. Meanwhile, the median net worth of households renting their home was just $2,208 – 90 times less. Jonathan Lansner, columnist for the Orange County Register, remarked that since the end of 2013, the economy has rebounded significantly, which probably means homeowner net worth is now even higher.
Another similar study of homeowner financial data confirmed these findings. The Federal Reserve found that between 2010 and 2013, the gap between homeowner net wealth and that of renters increased from a $182,000 difference to more than $220,000. Based on the study, Lawrence Yun of the National Association of Realtors concluded that by the end of 2016, homeowner net worth will have likely outpaced renters 45 times over.
How homes pay off
It’s easy to assume that homeowners are more wealthy simply because they had enough money to buy a home in the first place. But since most pay for real estate with a loan, homeowners are technically in debt for quite some time. The difference is that mortgage debt is an investment, unlike personal loans or credit card interest. It’s not just convenient to buy a home with a mortgage, it slowly turns into an investment that really pays dividends. Since home prices are rising at a faster rate than interest on the standard home loan, owners can expect to sell at a decent profit once they have paid off their lender. And before that happens, they are still contributing money to an equity fund that’s tax-advantaged, thanks to the federal income tax break on mortgage interest.
While the wealth gap between homeowners and renters is a concern, it only strengthens the argument that ownership is still a goal worth striving for. Real estate professionals, and hopeful buyers themselves, should take this into consideration as they work toward a great deal.