Home Ownership, Wealth and Hardship

Much has been written on homeownership and wealth. With the 2020 pandemic, we believe now is the time to review these benefits.

Homeownership during hardship
Jonathan Eggleston, an economist, and Donald Hays, a survey statistician in the US Census Bureau's Social, Economic and Housing Statistics Division concluded that “wealth inequality between homeowners and renters is striking, with the former having median net worth 80 times that of the latter.” 

“The authors say net worth is an important indicator of economic well-being that provides insights into a household's economic health.  For example, during financial hardships such as illness or unemployment wealth is a buffer.”  This statement has never been more true than during the Covid-19 pandemic. Many people refinanced their homes in the first quarter of 2020 and used the equity within their home to remain financially stable.

Five Potential Financial Benefits of Owning

In a 2013 research article by the Joint Center for Housing Studies at Harvard University, they listed the following 5 financial benefits of home ownership.
  1. A mortgage is a type of forced savings. Each month a portion of the payment goes toward principal reduction. The amount paid towards the principal increases over the length of the mortgage.
  2. One can expect their home to appreciate over time. The researches concluded that between 1975 and 2012 the compound annual growth rate in house prices has exceed inflation by 0.8 percentage point.
  3. A down payment, even a small one, is a small equity stake for a higher potential return. Consider the case where a buyer puts down 5 percent and the house would appreciate at 4 percent annually.
  4. The mortgage interest and property tax deductions can save home ownership money.
  5. Finally, mortgage payments stay constant while rents increase. A 30-year fixed rate mortgage would stay constant while other factors such as pay may increase.
This Harvard University study reviewed the benefits for homeownership across all social economic classes and found that homeownership remains particularly important for lower-income and minority households.

- May 26, 2020