Homeowner’s Net Worth Is Still Greater Than a Renter’s

Homeowner’s Net Worth Is Still Greater Than a Renter’s | MyKCM

Every three years, the Federal Reserve conducts their Survey of Consumer Finances in which they collect data across all economic and social groups. The latest survey, which includes data from 2010-2013, reports that a homeowner’s net worth is 36 times greater than that of a renter ($194,500 vs. $5,400). 

The latest survey data, covering 2014-2016 will be released later this year. In the meantime, Lawrence Yun, the National Association of Realtors’ Chief Economist estimates that the gap has widened even further, to 45 times greater ($225,000 vs. $5,000)! 

Put Your Housing Cost to Work for You

As we’ve said before, simply put, homeownership is a form of ‘forced savings.’ Every time you pay your mortgage, you are contributing to your net worth. Every time you pay your rent, you are contributing to your landlord’s net worth.

The latest National Housing Pulse Survey from NAR reveals that 84% of consumers believe that purchasing a home is a good financial decision. William E. Brown comments:

“Despite the growing concern over affordable housing, this survey makes it clear that a strong majority still believe in homeownership and aspire to own a home of their own.Building equity, wanting a stable and safe environment, and having the freedom to choose their neighborhood remain the top reasons to own a home. 

Bottom Line

If you are interested in finding out if you could put your housing cost to work for you by purchasing a home, let’s get together and evaluate your ability to buy today!

A SPECIAL REPORT ON US INTEREST RATES

 

Clinton & Trump

Long term interest rates: mortgages and auto loans

When you take out a home mortgage or auto loan, the lender normally sells your loan into the bond market (see illustration below).  This allows lenders to continuously replenish their available funds and loan out more money.  This also gives investors in the bond market the ability to buy safe investments (bonds) that produce a predictable source of income from the interest payments that you make each month.

In the financial market, bonds are generally considered to be a safer bet than stocks.  When the financial markets are fearful, or when there is negative economic news, investors tend to buy bonds.  This drives up the demand for bonds.  The bond investor is willing to accept a lower rate from the lender, and the lender can charge you a lower rate on your loan.

On the other hand, when the financial markets are optimistic, or when there is positive economic news, investors tend to sell bonds.  This drives down the demand for bonds.  The bond investor demands a higher rate from the lender, and the lender charges you a higher rate on your loan.

How will the Presidential election impact long term interest rates?

The financial market believes that a Donald Trump presidency would be more unpredictable than a Hillary Clinton presidency.  This means that if Donald Trump wins the election, demand for bonds is likely to increase, and interest rates could go down in the near term.  On the other hand, if Hillary Clinton wins the election, demand for bonds is likely to decrease, and interest rates could go up in the near term.

The financial market doesn’t like uncertainty.  If the election results are contested, or if the market finds any other reason to be fearful, interest rates could go down.

Short-term interest rates: credit cards, business loans, home equity lines of credit

Short-term interest rates are not really impacted by the bond market.  Instead, they are impacted by the Federal Reserve. Most economists believe that the Fed will start increasing short-term interest rates again in December, 2016.  This means that interest rates on credit cards, business loans and home equity lines of credit could start going up at that time.

This means that if you have other debts, this may be a great time to consider a debt consolidation loan.

Net Worth 45x’s Greater as a Home Owner

Homeowner’s Net Worth is 45x Greater Than a Renter's | Keeping Current Matters

Every three years the Federal Reserve conducts a Survey of Consumer Finances in which they collect data across all economic and social groups. The latest survey, which includes data from 2010-2013, reports that a homeowner’s net worth is 36 times greater than that of a renter ($194,500 vs. $5,400). In a Forbes article the National Association of Realtors’ (NAR) Chief Economist Lawrence Yun predicts that in 2016 the net worth gap will widen even further to 45 times greater. The graph below demonstrates the results of the last two Federal Reserve studies and Yun’s prediction:

Homeowner’s Net Worth is 45x Greater Than a Renter's | Keeping Current Matters


Put Your Housing Cost to Work For You

Simply put, homeownership is a form of ‘forced savings’. Every time you pay your mortgage you are contributing to your net worth. Every time you pay your rent, you are contributing to your landlord’s net worth. The latest National Housing Pulse Survey from NAR reveals that 85% of consumers believe that purchasing a home is a good financial decision. Yun comments:

“Though there will always be discussion about whether to buy or rent, or whether the stock market offers a bigger return than real estate, the reality is that homeowners steadily build wealth. The simplest math shouldn’t be overlooked.”

Bottom Line

If you are interested in finding out if you could put your housing cost to work for you by purchasing a home, meet with a real estate professional in your area who can guide you through the process.