You’ll often hear people saying that renting is like throwing money down the drain. But why? After all, when you take out a mortgage, you have to pay a bunch of interest which goes straight into the pockets of bankers and their investors.
But it turns out that the case against buying a home is weaker than most people think. In reality, when you purchase a house, you’re essentially buying an asset – something which will hold its value for a long time.
In fact, the majority of any nation’s wealth is usually held in its housing stock, mainly because of the fact that houses have an uncanny ability to hold their value over time, unlike, say, stocks.
Why People Think Owning Is Expensive
But that doesn’t stop the perception that owning a house is expensive. According to some sections of the media such as time.com, and popular opinion, owning a house isn’t’ an investment asset because the house doesn’t produce anything, In fact, they’ll point to data which show that the mean value of housing doesn’t rise in the long term higher than inflation.
To some extent. These people are right. Something called the Case-Shiller index, an index of house prices which measures the value of property relative to income, was pretty stable throughout most of the twentieth century.
In fact, the price of homes only rose by about 0.2 percent above inflation, compared to the historical average of stocks, which was running nearer 5 to 7 percent. Add to that all the costs of buying a house, and it doesn’t seem like a good deal.
Another argument against buying a home is the cost of upkeep. Landscaping, repairs, decorating – it all costs a lot of money, and it’s not something that renters usually have to worry about.
Why Buying Still Wins
Despite all the apparent costs of buying a home outright, the figures speak for themselves. When you take the average person in the US in terms of income who owns a house and compare them to the average person who rents, you soon discover that the homeowner is a lot wealthier regarding assets.
When it comes to median net worth, those who own a home have a net worth of around $77,000, about two-thirds of which is locked up in their equity. By contrast, those who don’t own their own homes have practically no median net worth.
Why does this matter? It matters, according to homeequitylineof.credit, because those who don’t have any equity build up in their homes can’t borrow for new investment projects as easily, and don’t have much to fall back on to avoid bankruptcy.
Though the arguments again buying might seem compelling on a common-sense level, the figures speak for themselves.
It’s as if mortgages force people to commit to a life of wealth-building, and this is what causes them to build up their assets, despite having the same income as renters. Assets are ultimately what creates wealth, and so by buying, you’re putting yourself in a better position in the long run.