For many of us, buying a home is the most important financial investment that we will ever make. But the recent housing crisis has left many people wondering if buying a home is still an effective tool for people to save money and generate wealth for the future.
The answer is ‘yes,’ according to recent studies.
Citing research conducted by the Center for Responsible Lending and the Federal Reserve Board, a 2014 article posted in the New York Times contends that, even with the decline in home equity during the recent housing crisis, the gap in net worth between homeowners and renters is substantial. As of 2013, the median net worth of American homeowners was $195,400, compared to the median net worth of renters, which was only $5,400.
So what is it about homeownership that fosters wealth creation? According to a recent study conducted by the Joint Center for Housing Studies at Harvard University, there are two significant ways in which owning a home can generate wealth:
- the long-term appreciation in home prices, and
- the increase in savings (the down payment) that occurs when households first purchase a home.
For example, the Harvard study found that those buying a home between 2007 and 2009 had gains in net worth averaging $18,000, more than three times their net worth before purchasing a home.
In short, buying a home forces people to save up for a down payment. Furthermore, the monthly mortgage payment requirement forces homeowners to continue to save each month as they pay down their principal balance and build equity in their home.
Although renters can invest in the stock market or other investment tools, without a tangible goal or a regular savings requirement, both the article in the New York Times and the Harvard study argue that over the long term renters do not accumulate nearly as much wealth as homeowners.
While buying a home is not a good fit for everyone, at TSAHC we want to make sure that all Texans who dream of becoming homeowners have the opportunity to fulfill that dream. Click here to learn more about our home buyer programs that provide low interest loans, down payment assistance grants and mortgage tax credits to Texas home buyers.
And for a list of tips on how to save up for a down payment to buy a home, make sure to check out next week’s blog post, which will be published on Friday, May 8th.
On the House blog posts are meant to provide general information on various housing-related issues, research and programs. We are not liable for any errors or inaccuracies in the information provided by blog sources. Furthermore, this blog is not legal advice and should not be used as a substitute for legal advice from a licensed professional attorney.