Homeownership’s Impact on Net Worth

by The KCM Crew on April 2014.
 
Over the last six years, homeownership has lost some of its allure as a financial investment. As homeowners suffered through the housing bust, more and more began to question whether owning a home was truly a good way to build wealth. A study by the Federal Reserve formally answered this question.

Some of the findings revealed in their report:

 

• The average American family has a net worth of $77,300
• Of that net worth, 61.4% ($47,500) of it is in home equity
• A homeowner’s net worth is over thirty times greater than that of a renter
• The average homeowner has a net worth of $174,500 while the average net worth of a renter is $5,100

Bottom Line

 

The Fed study found that homeownership is still a great way for a family to build wealth in America.

Different Generations See the Value in Homeownership

by Steve Harney on April 18, 2013 

Our founder, Steve Harney, occasionally asks to do a personal post on what he sees as important to our industry. Today is one of those days. – The KCM Crew

During an online chat with other real estate professionals last week, the question of the true value of homeownership was raised. My son, Bill, and I each chimed in unaware of the other’s response. It was interesting how the different generations valued homeownership for slightly different reasons. Below, are both responses.

Bill’s Response:

 

I want to weigh in as a 20-something who recently purchased a home for the first time.

While the financial reasons (wealth-building, not wanting to throw away rent payments every month, that owning is actually cheaper than renting in many markets right now) certainly had an impact on our decision, I think there are too many that are quick to dismiss the non-financial reasons that my peers and I discuss more often than people think.

There’s a very good reason why my wife and I host more parties than my friends who live in apartments (space). There’s a reason why we get more compliments about our house than our renting friends (freedom to choose our own stuff). We have the greatest dog in the world, while I hear “I can’t wait to get a house because I’ve always wanted my own puppy but I can’t right now”.

As a “young” buyer, do I want to make a smart decision? Of course. Do I want to understand the numbers and feel confident with the purchase? Sure. But that’s not what I woke up dreaming about 2 years ago. I woke up dreaming about the house that my wife and I can raise a family in; the house where we’re going to have barbecues with all our neighbors.

We woke up talking about the house that finally allowed my wife to get the dog she’s wanted since she was a kid (and that I fell in love with). We started picking out bedroom colors for our future babies.

You want advice for helping more young buyers? Ask them what their dreams are. What are their goals? What do they wake up talking to their partner about? Help them realize this and you only have to show them that the financials make sense (we’re not looking to make a quick buck on the house we’re living in).

Isn’t this what real estate is about anyway? Helping people realize their dreams? That’s what it was always about in my house growing up (thanks Steve). That’s what my wife grew up thinking. That’s what my friends (all in the first time home buyer range) think. Why not talk to them about this?
Sorry for the rant everyone. Figured I had a spot for the voice of the young buyer to be heard by the industry’s elite and I couldn’t pass that up. Thanks for reading.

My Response:

 

Do I think that homeownership is right for everyone? No, I don’t.

Do I think people who can’t afford a house should buy one anyway? No, I don’t.

However, I do believe for the majority of families that homeownership is important. Instead of giving you the links to the numerous studies I have that delineate the benefits of homeownership, I’ll give you one anecdotal story – my own.


Guess where I got the seed money to start my real estate company? My home.

Guess where I got the money for Bill’s college education? My home.

Guess where my younger son, Steven, moved to when he couldn’t find gainful employment after college? My home.

Guess where my older son, Bill, and his wife (and cat & dog) moved to when Sandy ravaged their house? My home.

Guess where I got the down payment for a winter getaway in South Beach for my wife and me? My home.

The home I struggled to buy over 20 years ago has financed my business, put two sons through college and enabled me to buy a winter escape in Florida. And during that whole time, it also allowed me to provide my family shelter during their times of need.

Do I firmly believe in the value of homeownership? Yes, I do!!

Ready to start your own Real Estate adventure? If so let's chat and get you on the right path.

Noemi Cardoso
William Raveis Real Estate
911 Main Rd - Westport MA 02790
Cell: 508-558-1945
www.DistinctiveHomes-NE.com
Noemi.Cardoso@raveis.com
Serving Ma & RI
Fluent in Portuguese and English


 

Is Homeownership a Good FINANCIAL Decision?

The KCM Crew - February 2013

Many have reported on Robert Shiller’s recent comments on the investment aspect of homeownership. Shiller, a Yale professor and co-founder of the Case-Shiller Home Price Index, is famous for making provocative comments on house prices and the financial benefits of owning a home. In a recent Bloomberg Television interview, Shiller responded to a question about homeownership as an investment this way:

“So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000′s. And I don’t expect it to come back. Not with the same force. So people might just decide, ‘Yeah, I’ll diversify my portfolio. I’ll live in a rental.’ That is a very sensible thing for many people to do.”

Today, we would like to debate Shiller’s notion by offering three FINANCIAL reasons to purchase a home:

1.) You Can’t Live in Your IRA

When you buy your own home you are not taking available dollars away from another investment. You are replacing one housing expense (rent) which has no potential for a return on investment with another (mortgage payment) that does give you an opportunity for a return. We realize that there has been research showing that over the last 30 years renting has been less expensive than owning. That research also says that if you invested the entire difference between the rent payment and mortgage payment you may have done better financially. There are two challenges with this conclusion:

• Today, in the vast majority of the country, renting is actually more expensive than owning a home.
• History has proven that tenants DO NOT invest the difference in their rent and mortgage payments.

2.) Homeownership Creates Wealth

Paying a mortgage creates what financial experts call ‘forced savings’. The Joint Center for Housing Studies at Harvard University released a study titled America’s Rental Housing: Meeting Challenges, Building on Opportunities. In the study, they actually quantified the difference in family wealth between renters and homeowners:

“[R]enters have only a fraction of the net wealth of owners. Near the peak of the housing bubble in 2007, the median net wealth of homeowners was $234,600—about 46 times the $5,100 median for renters. Even if homeowner wealth fell back to 1995 levels, it would still be 27.5 times the median for renters.”

3.) There Are Tremendous Tax Advantages to Investing in a Home

There is no doubt that selling an investment such as gold is easier than selling your home. However, this liquidity comes at a price. The price is called capital gains. That is the tax you pay on any financial gain you receive from the investment. This tax doesn’t apply the same way when you sell your primary residence:

Theresa Palagonia, a CPA and the Accounting Manager for the firm G.S. Garritano & Associates, was good enough to explain the Home Sale Exclusion Rules:

“You may qualify to exclude from your income all or part of any gain from the sale of your main home. Maximum Exclusion You can exclude up to $250,000 of the gain on the sale of your main home if all of the following are true:

• You meet the ownership test.
• You meet the use test.
• During the 2 year period ending on the date of the sale, you did not exclude gain from the sale of another home.

If you and another person owned the home jointly but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions listed above.

You may be able to exclude up to $500,000 of the gain on the sale of your main home if you are married and file a joint return and meet the requirements. (Special rules apply for joint returns.)

We will let you decide for yourself whether homeownership makes sense financially.

If you are thinking of buying a home in Westport MA visit www.DistinctiveHomes-NE.comfor a free list of homes for sale in Westport MA.

If you are thinking of selling your home contact me for a FREE Current Market Analysis and to learn about our Market Plan to get your home SOLD!

We work with one going in mind, YOURS!

Noemi Cardoso
Local Office. Local Agents. Local Knowledge.
William Raveis Real Estate
911 Main Rd - Westport MA 02790
Cell: 508-558-1945
www.DistinctiveHomes-NE.com
noemi@DistinctiveHomes-NE.com

The Finances of Renting vs. Buying

by The KCM Crew on September 14, 2012

Trulia reported this week that homeownership is 45% cheaper than renting in the United States. Jed Kolko, Trulia’s Chief Economist explained:

“Homeownership is cheaper than renting in all of the 100 largest metros, by a wide margin. Despite the recent price rebound, rents continue to rise faster than prices, and mortgage rates are near record lows.

Homeownership makes the most financial sense for people whose strong credit scores let them snag the lowest mortgage rate and who get the biggest benefit from deducting mortgage interest and property taxes from their income taxes.”

(Trulia’s methodology is explained here.)

This news did not come as a surprise to us as we have reported that today’s rental market definitely favors the landlord. Below is a graph of how rental prices have increased recently and where they are projected to go over the next few years based on a report from Marcus and Millichap.

 

It cost more to rent than own right now. And you don’t get any of your rent back in the future. History shows us, in the long term, you can build equity in a home. Dr. Ken Johnson earlier this year explained in a post on this blog:

“It appears that homeownership creates extra wealth mainly through its ability to force owners to save rather than through property appreciation. Thus, homeownership appears to be a self-imposed savings plan, which through time leads to greater wealth accumulation as compared to comparable renters. In short, buying a home makes Americans save.”

The Joint Center for Housing Studies at Harvard University released a study last year titled America’s Rental Housing: Meeting Challenges, Building on Opportunities. In the study, they actually quantified the difference in family wealth between renters and homeowners:

“[R]enters have only a fraction of the net wealth of owners. Near the peak of the housing bubble in 2007, the median net wealth of homeowners was $234,600—about 46 times the $5,100 median for renters. Even if homeowner wealth fell back to 1995 levels, it would still be 27.5 times the median for renters.”

What Does This All Mean?

We believe David Shulman, senior economist with the UCLA Ziman Center for Real Estate said it best:

“The American Dream of homeownership may be comatose, but it is not dead, and the wake-up call will come in the form of higher rents.”

 

If you are thinking of buying a home in Bristol County MA or RI visit www.DistinctiveHomes-NE.com for a free list of homes for sale in Bristol County MA and RI.

If you are thinking of selling your home contact me for a FREE Current Market Analysis and to learn about our Market Plan to get your home SOLD!

Noemi Cardoso

RE/MAX Welcome Home

Cell: 508-558-1945
Home Office (Westport) 774-264-9085
www.DistinctiveHomes-NE.com
noemi@DistinctiveHomes-NE.com