Home Is Where The Money Is
The American dream of homeownership is one of the best paths to accumulating personal wealth. According to a Federal Reserve 2004 Survey of Consumer Finances, the median net wealth of homeowners is $184,400, while the median net wealth of renters is only $4,000.
Owning a home gives families a sense of pride, stability and security, and for many, the roof over their heads also helps build a sizable nest egg. For example, a $210,000 home purchased today with a $10,000 down payment and a 30-year fixed-rate mortgage at 6.5 percent would cost a steady $1,100 per month. After 10 years, assuming an historic 4.5 percent annual appreciation rate, the homeowner would have accumulated a net worth of $138,521.
In comparison, over the past 10 years, the cost of rental housing in the United States has increased an average of 3 percent per year. A rental payment of $1,000 per month, with a 3 percent annual increase, would amount to $137,567 after 10 years, with no wealth accumulation.
"Owning a home is a wealth builder for many Americans. However, all real estate is local and this can lead to swings in a property's value in certain markets. While it may make sense to rent in some communities in the short term, buying is a safe, steady investment for buyers looking to own long term," said David Lereah, chief economist of the National Association of Realtors.
Owning is a form of automatic savings. Homeowners who make mortgage payments on an amortized loan (a loan where portions of the payment are applied to both the principal amount and the interest due) increase their home "equity," or wealth, every month. Equity also grows as the home appreciates in value.
Homeowners also enjoy many tax benefits, including mortgage interest and real estate tax deductions on personal income tax returns.
While there are additional expenses that can be incurred from owning--like maintenance, insurance and taxes--the increase in homeowner's equity as the house appreciates usually outweighs these costs.
Owning a home involves commitment and responsibility, but it's also one of the best long-term investments consumers can make, for their finances and their future.
For additional information on the benefits of owning a home, visit www.realtor.org.
The Federal Reserve Board estimates that homeowners have a net worth nearly 46 times more than that of renters.
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