What Really Creates Family Wealth

There has been recent press regarding whether or not it makes better financial sense to rent rather than buy in today’s housing market. As an example, the recently released June Summary of the BH&J Buy vs. Rent Indexreported:

“…as of the end of the first quarter of 2015, the housing market in the U.S. and all cities in the index are trending either closer to renting being the superior option or strictly favoring renting over purchasing a home.”

The summary goes on to explain that:

“The index conducts a “horse race” comparison between an individual that is buying a home and an individual that rents a similar quality home andreinvests all monies otherwise invested in homeownership.”(emphasis added)

Though the math may be correct, we are not as sure of the conclusion. Even if you check the methodology offered by the BH&J report itself, you will find that they realize:

“…any extra savings from renting might be spent on non-wealth enhancing goods resulting in any benefits from renting versus owning disappearing in a cloud of consumption spending rather than savings.”

The Concept of ‘Forced Savings’ and Wealth Accumulation

Many believe the wealth accumulation of homeowners is tied into the concept of “forced savings”. The New York Times late last year published an editorial entitled,Homeownership and Wealth Creation, which discussed this conceptThe article explained:

“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.”

Many of the points that were made in the article are on track with the research done by the Joint Center for Housing Studies at Harvard University which agrees that “forced savings” is a major advantage of homeownership. In a paper, The Dream Lives On: the Future of Homeownership in America, they concluded:

“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”

The Truth is in the Historical Data

Edwards Deming once said: “Without data, you’re just another person with an opinion.”

Let’s look at the data on this subject. The Federal Reserve has conducted a study titled:Survey of Consumer Finances. The study found that the average net worth of a homeowner ($194,500) is 36 times greater than that of a renter ($5,400).


The New York Times editorial articulated it best:

“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…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!


6a3824b4 899d 4c79 9464 55660eabf3c2 d7c910d1 66a1 4181 92b8 9de16b0832a8 b7ca0ca5 313e 4e46 b103 ed2abc95c6ab 3fcb9457 a2e2 4d01 a46a eea4692fcc59 75506868 fa5f 4617 816a 217e3cc141cc 4fe7c428 13a5 4489 be8a 4c7d1ce9eea3 92298c3a 700a 4a35 a01d 7edfcd75201f a0cfb2f3 8a02 4755 bf70 cefaab5995ae 8f951fb9 7d29 45e8 9037 14ef27f2ef2b 77d649d0 543c 4d4a b82d 916d6e724864 abf117b0 0835 4f7a 9b12 08e8d121503e 8f5b7bbe ce40 43ad 92c0 e5e9bebb0be4 0ddfc1b6 99c8 404b aaed df762e69248f c2735b70 b9bb 4fd4 b0be ce022df2c1fd 493b2481 b0b1 48df aa63 32657f5247d9 4bde89ac 5cee 470b b8b5 29481f23f039 7489c377 8ebe 4323 b51d fb9c21ab41af dd277cad 6567 4ce8 9067 a851f4488a89 6e6c0d31 022d 4c53 9dc5 a98b2bd93fa7 ba5cbe71 81bb 4a8f 8b45 a0c135a6cbca 71bf2e8c d01f 4b18 b3ae eb0671531ee6 d3cc7b6e d066 4250 a9b9 3673b7360fbc d0024c54 15cc 494e b483 ef6f07201174