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Subject:
Effects of Home Ownership on Personal Wealth
Category: Business and Money > Economics Asked by: sam_lee_ca-ga List Price: $20.00 |
Posted:
24 Jul 2006 13:14 PDT
Expires: 23 Aug 2006 13:14 PDT Question ID: 749117 |
I have heard that owning a home makes a big difference in family wealth. That people who own homes are richer and their children are richer than those who rent. Please find 3 citeable primary sources that support this concept if possible. |
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Subject:
Re: Effects of Home Ownership on Personal Wealth
Answered By: gregaw-ga on 24 Jul 2006 13:39 PDT Rated: |
1. Source: Federal Reserve Board http://homesightwa.org/benefits%20of%20home%20ownership.htm Home ownership builds wealth. The median net worth of most modest-income owners is almost $60,000 compared to less than $10,000 for renters in the same income group. The Federal Reserve Board ? Survey of Consumer Finance. http://www.federalreserve.gov/boardDocs/speeches/2001/200111082/default.htm http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html 2. Source: HUD (US Department of House and Urban Development) http://www.huduser.org/publications/txt/hdbrf2.txt "Median net wealth for homeowners exceeds $78,400, while renters accumulate less than $2,300, or 3 percent of this amount." 3. Source: NATIONAL ASSOCIATION OF REALTORS® - National Center for Real Estate Research, Nov. 2004 http://www.realtor.org/ncrer.nsf/files/Housing%20Wealth%20Effects%20final.pdf/$FILE/Housing%20Wealth%20Effects%20final.pdf "Among homeowners with under$20,000 in income, three quarters have more home equity than stock equity. Meanwhile, the median wealth of these low income owners is 81 times greater than the median wealth of renters with comparable incomes." There are several articles at this site that may help as well. http://www.realtor.org/libweb.nsf/pages/fg302 If you require any additional information please post a request for clarification. Thanks! |
sam_lee_ca-ga
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On point. Thanks. |
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Subject:
Re: Effects of Home Ownership on Personal Wealth
From: jack_of_few_trades-ga on 24 Jul 2006 14:00 PDT |
I have also been very interested in this topic. I'll first point out that all of the sites above are very flawed if you're looking at a home as a source of net worth. The sites show average wealth, but do not show that the home created more wealth than an equal investment in the stock market would have. I have done the math and it surprised me a bit. Even in your own home (where you get the nice tax breaks), the long term benefit of owning verses renting is negative using [what I researched as] reasonable expectations of the stock market (11%) and home appreciation (5%) and rent increases (4%). If you invest the money wisely using tax advantaged accounts then you will come out ahead in the market than by buying. The trick is that most people don't invest the difference in what they would have spent for the house vs renting... instead they spend it needlessly. I guessed that the above was true, but what did surprise me was that in the short run (5 to 10 years), buying a house is likely more beneficial than investing. The critical eliment that I didn't consider before is that in the short run, the house is bought almost entirely with the banks money (a very large margin purchase). This greatly increases the risk of your investment (if the house value doesn't rise then you lose alot of money), but you have a much greater investment that grows than you would have if you only used your money. But by the time you've had the house 20-30 years, the opportunity cost (investing aggressively in tax advantaged accounts) outweighs the benefits of buying the house. Also consider that you would buy a more expensive house than you would rent. In the DC area, cheap houses are going for $400,000... that is about $2500 mortgage. Cheap rentals are going for about $1500. That is $1000 per month that you are spending extra, and most of that is interest, not payment on the principle. |
Subject:
Re: Effects of Home Ownership on Personal Wealth
From: pinkfreud-ga on 24 Jul 2006 14:39 PDT |
>> ...people who own homes are richer...than those who rent. I don't find this surprising, in view of the fact that a certain amount of personal wealth is generally required in order for a person to be able to buy a home. I'd imagine it is also true that people who own Rolls Royces are richer than those who ride the bus. That doesn't meant that owning a Rolls Royce leads to wealth. |
Subject:
Re: Effects of Home Ownership on Personal Wealth
From: myoarin-ga on 24 Jul 2006 19:44 PDT |
Pink is right, the richer own their houses because they are richer. Purchasing a house does not make one richer. Jack has brought up the important fact that all the financial calculations showing that renting and investing the difference optimable are pure theory. Paying off a mortgage is a form of saving: one is increasing his equity. Also, as mentioned: If house costs are increasing 5% pa, and one has a 20% down payment, after five years, one may have repaid 5% of the principal of a 30 yr mortgage, so he has 25% equity in the house, which has now increase 25+% in value, and that is all the owner's if he sells, approximately doubling his investment. |
Subject:
Re: Effects of Home Ownership on Personal Wealth
From: sam_lee_ca-ga on 26 Jul 2006 21:46 PDT |
My question was partially prompted by the artificial life models that I have seen over the last 20 years. Qualitatively I have seen that the models show that parental life with greater assets have offspring with higher assets compared to other AI life that are offspring of poorer parents. Just an FYI. |
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