Tags: homeownership | property | rent | real estate

Study: Homeownership Doesn't Build Wealth Like Other Investments

Study: Homeownership Doesn't Build Wealth Like Other Investments
(Dreamstime)

By    |   Thursday, 16 November 2017 03:45 PM

Homeownership isn’t necessarily better than paying rent, according to an academic study cited by CNBC.

"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," Ken Johnson, a co-author of the report and an economist at Florida Atlantic University's College of Business, said in a statement. 

Renters who set aside money to invest in other assets can build more wealth​ over the long term, according to the research that examines home price appreciation against a portfolio of stocks and bonds that were equal in volatility.

"When you assume that those monies are reinvested at a rate of return, renting, on average, wins in terms of wealth creation," Johnson said. "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 may lose the ability to deduct property taxes and a portion of the interest payments on mortgage debt, depending on whether Republican proposals to change the tax code are signed into law.

People who bought homes in expensive markets like the New York metropolitan area or San Francisco may see their tax bills rise if they can’t deduct mortgage interest from their gross income.

For many Americans who don’t invest in stocks and bonds, the money they put into their homes is their most significant form of building wealth. Homes lose value unless they are continually maintained and refurbished, and the land they sit on typically gets more expensive.

"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," Nela Richardson, an economist at brokerage Redfin, told CNBC.

“The American Dream is alive and well but in need of revision,” Johnson said. “To that end, we suggest not all but most should own rather than rent due to ownership’s embedded commitment to save. Owning real estate should be sold as a strategy to create better set of risk-adjusted returns rather than create wealth alone.”

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Homeownership isn't necessarily better than paying rent, according to a study Florida Atlantic University, Florida International University and the University of Wyoming cited by CNBC."On average, renting and reinvesting wins in terms of wealth creation regardless of...
homeownership, property, rent, real estate
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Thursday, 16 November 2017 03:45 PM
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