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Study finds that homeownership doesn't build wealth like other investments

By Mike Wheatley | November 20, 2017

Home ownership is usually better than paying rent but it can't be relied upon to make you rich, according to a joint study by Florida Atlantic University, Florida International University and the University of Wyoming.

“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 FAU’s College of Business, said in a statement.

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

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 Metro area or San Francisco may see their tax bills rise if they cannot deduct mortgage interest from their gross income.

For many Americans who do not 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,” an economist at brokerage Redfin, told CNBC in an interview Thursday.

“The American Dream is alive and well but in need of revision, 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.”

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
  • One comment on “Study finds that homeownership doesn't build wealth like other investments”

    1. I think there is a huge point being missed here - today's renter is paying more than it cost to own a home, why wouldn't a home owner also be setting aside funds to invest in other assets to build wealth as a renter would ? They are paying less to own the home and would have added income to do so. Also, if your concern of the property that a homeowner owns continues to cost more, it also costs more to the landlord that rents it out, therefore inevitably increasing the cost of rents to a tenant ! Why not build wealth while you create another asset with a primary residence ?

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