Renters, Break Out Your Hankies: Homeowners Will Build Serious Wealth (and You Won’t)
The news has been a little grim of late for renters. Homeownership is at all-time lows and, with rising prices and tight credit, the path to the American dream is likely to stay rocky and steep. Which means more competition for renters. Which means higher prices. Which means … ugh.
Not to rub salt in your renter’s wounds, but a recent assessment by Lawrence Yun, chief economist of the National Association of Realtors®, isn’t likely to lift your spirits. A homeowner’s net worth, he told Forbes, will be 45 times greater than that of a renter by 2016.
The Federal Reserve reported last year in its Survey of Consumer Finances, based on 2010–2013 data, that a homeowner had 36 times the net worth of a renter—$195,400 for the former and $5,400 for the latter.
It makes sense: Homeownership is a form of forced saving. Every time you make a mortgage payment, you’re contributing to your net worth.
And these days, more Americans with extra dollars are considering real estate a better investment than the stock market. Luxury owners, in particular, see property as a perfect place to stash some cash until they need it.
“At the top of the market, there’s certainly a pop of people just looking to park that dollar,” says Ginette Wright, vice president of luxury marketing at Coldwell Banker Previews International, which recently released its Luxury Market Report for fall 2015.
So what’s a renter gotta do to grow some wealth around here?
Weigh your options, like all those hoping to buy a home who don’t have stockpiles of cash, or both great credit and a decent down payment, to compete in this tight market. Consider a smaller home. Consider moving farther away (“Drive until you can afford it,” goes the saying). Consider a city of opportunity, where home prices can still accommodate that entry-level buyer.
You could also choose to ignore the hype, no matter how substantiated it may be. We’re relying on the assumption that home values will continue to grow or remain stable in the long term. Certainly, the consistent rise in home prices, this year from last, would make it seem that way.
But there are still markets where your investment isn’t a sure thing. According to realtor.com data, a few metro markets saw a slight drop in prices year over year in September: Jacksonville, NC; Atlantic City, NJ; Evansville, IN; Tallahassee, FL; andUtica, NY.
Meanwhile, homeowners, we won’t dissuade you from breaking out the Champagne. But don’t spring for Dom Pérignon just yet. Just to be safe, and to hold on to some of that net worth, may we suggest Bota Box wine.