Now you still may not be convinced. You may be clinging to the thought that those without homes should be able to put the money they don’t spend on curtains and sump pumps to better investment use. It’s a compelling theory refuted by reality. Here’s the picture:
Source: The Federal Reserve Board’s Survey of Consumer Finances for 2010.
That’s over a 30-to-1 net-worth advantage in favor of homeowners. Anticipating the sharp readers who will argue that this could be demographics (e.g., older people, more educated people, families, or high-income people are more likely to own houses), I looked further. Households headed by folks under age 35 have a median net worth that’s about double the $5,100 median net worth of non-homeowners. Households headed by folks with no high school diploma have saved more than triple what the non-homeowner has. So have single folks with no children. And, yes, even families in the bottom 20% of income have more net worth than the non-homeowner.
Pretty darn stunning.
We can speculate on why this is. I subscribe to the simple, classic argument in favor of homeownership. Each month, homeowners are automatically squirreling away the principal portion of their mortgage payment — as opposed to the renter, whose whole rent is an expense. People sometimes forget that the alternative to a mortgage is paying rent (not investing in the stock market) when they argue that home prices barely keep up with inflation.
As for the hidden costs of homeownership, I think a greater percentage of us than we’d like to admit end up blowing the money anyway — on fancier vacations, or extra glasses of wine on nights out, or living in a more upscale house or neighborhood, or shoes, or playoff tickets, or whatever it is that keeps our median net worth at just $77,300.
Don’t misunderstand me. This isn’t a call to arms for everyone to jump willy-nilly into one of the biggest, most complicated financial decisions of their lives. The harrowing stories from the housing bubble showed us what happens when we overpay or don’t do our due diligence. There are also non-financial reasons that buying a house just doesn’t make sense for some people.
And nothing I’ve written should be interpreted as a justification to buy that expensive rug instead of putting a little extra into your 401(k).
This is just a reminder that there are many theories on the other side, but the real-world numbers greatly favor buying versus renting when all else is anywhere close to equal.
The article Rent vs. Buy: Why Buying a House Generally Wins originally appeared on Fool.com and is written by Anand Chokkavelu, CFA.
Anand Chokkavelu, CFA, loves homeownership but hates yard work. You can follow him on Twitter. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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