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!


2ac9b312 8dd6 4490 84dd d0f8f19cafe5 2d270901 4adb 456e b96b b93e03e0a120 58169821 51db 4504 ac1c ea90aad90233 9a61065f 3cfd 4eb2 9294 793c8e37cdaf 40d1c161 7a78 4cf6 bcef a26c14271394 eb6e5459 a21b 47d2 aa6b 2748191d6c04 67c431da 4cef 45ae 8351 df372b46b08c 34fdb831 99f2 48e7 a74c 3058bd1f59d9 4b0bf12f 8f5b 4700 8d20 596b8a98122e 84049c91 3b85 4ce2 b926 601d1a76fd57 7ddc6af4 6365 4521 8c6c 7b02b869fcf9 eb9ce45e 6bb2 48d3 99aa 88f3021e385b a8e4bca0 3d22 40f8 b29a 839390057e93 116b8a1d 689a 45ea 91fb c9f6b27f8b0c c97b68d3 3ad5 4531 bea5 c700aa9a6655 c3d75e87 ffbb 495f a018 67370a7a9792 a7b014d7 d603 48a4 9149 039ea0a9aaae 3c4293cf e801 4623 904d 4c929db87fc1 66cfb8eb ba49 4d03 8d1f c7b87a3d0b22 cb1f5ecf 4470 4475 9131 f1b1f8c596d8 fdeddefb 91c2 4f36 a274 5633642add42 d5652b4c 6828 442c aefb 853e1f92cd97 fbd18dfc 2cb0 421f aba1 a45b86a4de70