Rent Vs. Buy| Homeownership Builds Wealth
In my opinion, home ownership is the greatest wealth building investment. Rents are subject to market fluctuations; while, fixed rate mortgages are not subject to market fluctuations. Monthly housing price stabilization is key to family budgeting and wealth growth. Historically, property values rise and income rises. This potential price appreciation has funded many retirements. Historically, rental rates rise and keeps pace or exceeds income growth. This diminishes wealth growth for individuals and families. Overcoming down payment requirements and income for financing a home seems to be the largest hurdle facing many would be purchasers. There are many great low down payment and even no down payment options currently available. There are also great grant programs and first time buyer programs that help with buyer eligibility. Unless you are transient, and know that you are not staying in an area for 3 to 5 years or more, renting is likely a very poor choice financially.
William McCoy writes “Renters will continue to struggle for the next decade, according to a Harvard Study.” The study points out the currently 11% of renters pay more than half their incomes in rent. The study points out that if renters continue to grow faster than incomes, the number of severely burdened households could rise by as much as 25%. According to the article, the growth is contributed to the rapid growth of low income households, who tend to be mostly renters and Millennials who have suffered from unemployment or underemployment issues. This boggles my mind as many Americans are faced with paying 50% or more of their income towards housing. It will be nearly impossible for these families to grow out of this vicious cycle and build their own and their family’s wealth. There is just nothing left at the end of the month after all their monthly expenses.
The solution may be in educating families about the advantages of home ownership over time. The housing market collapse in 2007 was not a result of home ownership, it was a result of purchasers spending way above their means and the mortgage industry allowing them to do so with no income/no documentation loans, negative amortization loans, and unsustainable adjustable rate programs. Building buyer confidence again is paramount to the housing recovery’s success.