Category Archives: Rental Market

Owning Still Trumps Renting in Overall Wealth

We’ve all been hearing about rising rental rates throughout the US and the percentage of monthly income renters are spending. This is probably a function of demand, housing costs, etc. After the housing debacle a few years ago, many have also wondered if owning a home is still a good investment for wealth management. Of course, I believe it is.  Home ownership, over the long run, is still a great investment.  Short term ownership may not be.  The article below outlines many of the benefits of home ownership, whether it’s a primary residence and/or investment properties.


The recent housing crisis has prompted questions over whether home ownership is still a viable way toward greater wealth in this country. Confidence in home ownership was shaken, and many have had to turn to renting (the number of renters has increased nearly 25 percent since the housing crisis). The home ownership rate, in turn, has fallen from a peak of nearly 70 percent in 2004 to a two-decade low of 64.3 percent more recently.

Still, researchers continue to find evidence that home ownership contributes to individual wealth. One example: The Center for Responsible Lending of Federal Reserve Board’s Survey of Consumer Finances recently found that median net worth of home owners in 2013 was $195,400, while at the same time the median net worth for renters was only $5,400.

“Home ownership 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 home owners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth,” according to a recent editorial in The New York Times.

The forced savings involved in home ownership is one big way home owners gather more wealth than renters. Home ownership requires buyers to save for a down payment and then, as owners, continue to save by paying down a portion of their mortgage principal each month. Renters could invest an amount equal to a down payment plus any savings from renting but most do not, according to a study by researchers at Harvard University’s Joint Center for Housing Studies, which recently was published as a chapter in a new JCHS book, “Homeownership Built to Last.”

“Most obviously, owners can accrue substantial wealth through appreciation in home prices, as evidenced by the outsized gains realized among those who first became owners in the 2003 and 2005 … as home prices took off,” the researchers note. “But fluctuations in home prices are a two-edged sword and a significant share of these gains were subsequently lost when the bottom fell out of the market.”

As such, researchers point out that the other mechanism by which owning is associated with increases in wealth is through the large increase in savings that occur when households make the move to owning. For example, those who first bought between 2007 and 2009, despite the ailing housing market, posted gains in net worth of $18,000 – more than triple the amount they held before purchasing a home, researchers found.

“We find that while there is no doubt that home ownership entails real financial risks, there continues to be strong support for the association between owning a home and accumulating wealth,” researchers note. “This relationship held even during the tumultuous period from 1999 to 2009, under less than ideal conditions. Importantly, while home ownership is associated with somewhat lower gains in wealth among minorities and lower-income households, these gains are on average still positive and substantial.”

Source: “Is Homeownership Still an Effective Means of Building Wealth for Low-Income and Minority Households?” Harvard University, Joint Center for Housing Studies (2013) and “Homeownership and Wealth Creation,” The New York Times (Nov. 29, 2014).

Original Article: DAILY REAL ESTATE NEWS | MONDAY, DECEMBER 08, 2014

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Skyrocketing rents hit ‘crisis’ levels

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Since the housing crisis began in 2008, approximately 4.6 million homes were lost to foreclosure, according to CoreLogic. The vast majority of those homeowners became renters. Even as housing recovered, credit tightened, pushing even more potential buyers out of homeownership and into rentals, both apartments and single-family rental homes.

There are now 43 million renter households, or 35 percent of all U.S. households, the highest rate in over a decade for all age groups, according to Harvard’s Joint Center for Housing Studies; 4 million more renters today than there were in 2007. For those aged 25 to 54, rental rates are the highest since the center began record keeping in the early 1970s.

As a result, rental vacancies have fallen dramatically, and rents have skyrocketed.

“We are in the midst of the worst rental affordability crisis that this country has known,” said Shaun Donovan, U.S. Secretary of Housing and Urban Development.

Half of all U.S. renters today pay more than 30 percent of their incomes on rent. That’s up from 18 percent a decade ago, according to the Harvard center. For those in the lowest income brackets, the jump is even worse.

“Over four years, a 43 percent increase in the number of Americans with worst-case housing needs,” said Donovan. “Let’s be clear what that means, they’re paying more than half of every dollar they earn for housing.”

The numbers are not lost on Annie Eccles, who is in her late 20s. She has been renting for over two years, and the rent on her Bethesda, Md., apartment has increased by the maximum the county allows every year.

“It’s frustrating because we pay for rent, we also pay for parking, and just knowing that every June it’s going to increase significantly, it’s frustrating,” said Eccles.

And Eccles pays almost as much each month on student loan debt as she does in rent. Put together, it makes it very hard for her and her husband to save up enough to buy a home of their own.

“It would be hard buying in this area, just because it’s so expensive,” she added.

Most younger Americans, like Eccles, want to be homeowners someday. While so-called millennials favor mobility and city living, they still see homeownership as a goal.

“Nineteen out of 20 people that are surveyed say that they intend to buy a home at some point in the future, if they’re under the age of 30,” said Eric Belsky, director of Harvard’s Joint Center for Housing Studies. “There is no question that the will toward homeownership remains there, it’s the way.”

Home prices are rising faster than expected, due to heavy investor demand, ironically in single-family rental housing. While more than 3 million owner-occupied homes are now investor-owned rentals, there is still a lack of supply in the market. New rental stock is coming soon, but demand is not easing. Renters may want to be buyers, but many still can’t, due to rising home prices and mortgage rates.

“You add in other things, like higher student debt for many people, you add in the fact that incomes for low- and moderate-income people have not been going up as fast as inflation, and you have a situation where it’s going to be very difficult to buy homes,” said Belsky.

By: Diana Olick | CNBC Real Estate Reporter