Study says homeownership should not be considered a wealth builder

by Steve Randall23 Nov 2017
The way we, and most of the world, views homeownership has been challenged by an academic study.

Most people believe that owning a home is superior to renting for several reasons but among the most prevalent is the view that homeownership builds wealth while renting is simply a cost.

However, a new study from faculty at Florida Atlantic University, Florida International University and the University of Wyoming suggests that property appreciation has historically been outperformed by stock markets.

"On average, renting and reinvesting wins in terms of wealth creation regardless of property appreciation, because property appreciation is highly correlated with gains in the traditional financial asset classes of stocks and bonds," said study co-author Ken Johnson, Ph.D., real estate economist at FAU's College of Business.

There is a huge caveat to this though. It assumes that renters use the money that they would otherwise save for a downpayment invest it in the stock markets instead, although many will spend it instead.

"To that end, we suggest not all but most should own rather than rent due to ownership's embedded commitment to save. Owning real estate should be sold as a strategy to create better set of risk-adjusted returns rather than create wealth alone," Johnson concluded.

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