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New York Times: Homeownership is Best Way To Build Wealth

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New York Times: Homeownership is Best Way To Build Wealth | Keeping Current Matters

The New York Times recently published an editorial entitled, Homeownership and Wealth Creation.” The housing market has made a strong recovery, not only in sales and prices, but also in the confidence of consumers and experts as an investment.

The article explains:

“Homeownership long has been central to Americans’ ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of homeowners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth.”

Many of the points that were made in the article are on track with the research that the Federal Reserve has also conducted in their Survey of Consumer Finances.

The study found that the average net worth of a homeowner ($194,500) is 36x greater than that of a renter ($5,400).

One reason for this large discrepancy in net worth is the concept of ‘forced savings’ created by having a mortgage payment and was explained by the Times:

“Homeownership requires potential buyers to save for a down payment, and forces them to continue to save by paying down a portion of the mortgage principal each month.”

“Even in instances where renters have excess cash, saving a substantial amount is difficult without a near-term goal, like a down payment. It is also difficult to systematically invest each month in stocks, bonds or other assets without being compelled to do so.”

Bottom Line

“As a means to building wealth, there is no practical substitute for homeownership.” If you are a renter who is considering making a purchase, sit with a local real estate professional who can explain the benefits of signing a contract to purchase over renewing your lease!


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5 Responses to “New York Times: Homeownership is Best Way To Build Wealth”

  1. Todd Singleton December 15, 2014 at 2:15 pm # Reply

    Doesn’t this sound familiar? Encourage home ownership with media propaganda, encourage government policy towards home ownership, have Fannie and Freddie drop down payment requirements to 3% for government insured mortagages for first time buyers (happened 10 days ago) , remove restrictions on derivative trading with FDIC insured deposits (thank the Federal budget fiasco).

    What could possibly go wrong? Please review the definition of insanity.

    • The KCM Crew December 15, 2014 at 3:02 pm # Reply

      Regarding the 3% down programs, you might find this interesting: http://www.keepingcurrentmatters.com/2014/11/13/fear-of-low-down-payments-mostly-unwarranted/

    • Carl S December 16, 2014 at 9:41 pm # Reply

      I couldn’t agree more. If you believe the main stream media, apparently the housing market is back everywhere except my neighborhood. We’re still making payments on a house we bought back in 2005 that’s still $50,000.00 underwater even though we paid $50,000.00 less than its current cost of replacement. Confused yet? We also can’t get it refinanced because it won’t appraise, not to mention we’ve tried to qualify for every federal program to reduce either the interest we’re paying or the principle down to current market value, yet somehow there is always one niggling point that renders us unqualified for every single program that was enacted at the federal level to help. I have no faith in any institution residing in the US much less the government at any level. If it weren’t for my kids and grand kids, we would be looking to immigrate OUT of the US, preferably to a country where we could afford to buy medicine, dental, and health care. I could go on and on but what’s the point?

      • wes@bradfieldproperties.com December 28, 2014 at 4:36 pm # Reply

        If you had been making one extra payment per year to principal, you would not be in this situation.

        I am not sure what was going on when you purchased the home? Maybe someone forced you to purchase the house… Maybe you did not need to fill out a loan application… Maybe you did not attend any sort of closing where a closing statement was available for you to approve… Maybe there were not loan documents that you could have had an attorney look over on your behalf… but, if you had an opportunity with any of the above-you are the one that chose to move forward.

        What I don’t understand, is why you expect the government to jump in and bail you out via principal reduction or interest rate reduction?

        I have personally brought thousands of dollars to the table to sell my properties. This is something that happens everyday. This is a contractual obligation-imagine if the banks could modify the loan by increasing your principal or interest rate.

        The more you justify your situation based on what someone else has or has not done with modifications is why we get into messes like this.

        Moving forward make decisions based on your situation and no one else’s…

        Go get a small signature loan for $30 or $40k so you can bring that to the table and be done with it (I would not suggest that though with the tax advantages you have owning vs. renting, not to mention, you could own that home out right in the next 10 years if you go about it the right way-this is something you could pass down to your kids/grand kids).

        The United States of America is the BEST place to live.

        Good luck-Chin up!

    • wes@bradfieldproperties.com December 28, 2014 at 4:51 pm # Reply

      The Millennial’s will surpass the Babyboomer’s as home purchasers in 2015… with this new wave of buyers-larger than any other segment in history-introduced to the market… homeowner ship needs to be a focus.

      Homeownership, buying/selling and velocity is what makes a strong economy. If you have money and don’t spend it there can not be growth. Simple concepts of supply and demand will tell you that appreciation will happen and is happening with the new buyers.

      With the lurk of inflation around the corner, it will be something we will be dealing with in the near future.

      So lets speed up the velocity of money. When a new home subdivision comes to town, it increases the tax base for cities, creates jobs for the workers. In turn, the money made is reinvested in the cities where these communities are formed… schools, hospitals, stores and on…

      Let’s keep on track with helping the first time home buyers purchase so you can move up to your new home.

      What we don’t need is a stagnant economy-That is when bright ideas like derivative trading with FDIC insured deposits come in to play.

      Stay positive and…

      Keep the money moving!

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