Wikinvest Wire

Renters wealthier than homeowners?

Friday, February 27, 2009

This report from CNN details the findings in a paper by David Rosnick and Dean Baker at the Center for Economic and Policy Research in which it was discovered that those who have been renting over the last five years are now wealthier than those who "own" their homes.

Whaaaaaat? (think Jon Stewart in a Home Alone pose)

That kind of flies in the face of everything you might hear from the National Association of Realtors about housing being such a great investment, but there it is:

The CEPR also found that people who were renting homes in 2004 will have more wealth in 2009 than those who were owners. That's true for all five wealth groups the study analyzed, from the poorest to the wealthiest.
IMAGE "The collapse of the housing bubble, which led to the current recession, has already destroyed almost $6 trillion dollars in housing wealth for homeowners," said report co-author Dean Baker. "This reality is compounded by the recent collapse of the stock market. Many baby boomers will only have Social Security and Medicare to rely on in their retirement."
It's important to note that Dean Baker is one of only about two economists in the world who, not only recognized the housing bubble in real time, but took the additional step of cashing out a few years ago, transforming himself into a renter, about whom he speaks so highly now.

As an added bonus, Peter Schiff (also a renter in recent years) makes a guest appearance:
Peter Schiff, president of Euro Pacific Capital, an investment firm specializing in overseas investments and a noted bear on housing market issues, thinks there's a good chance home prices will continue their steep decline.

"Real estate has to be priced like any other goods," he said. "Home prices have to reflect the economic reality. You buy for shelter, not to make money. You don't need to own a house. I'm a perfect example."

He has rented for years and reports that the owners of his current home, after subtracting for property taxes and insurance, are receiving a cash-flow return on their investment of less than 1%.

"Real estate is overpriced if owners get just a 1% return," he said.
It's funny to think that buying a house to make money to fund your retirement was a commonly held view amongst economists a few years ago.

That is, back when they were dismissing the zero-savings rate as being irrelevant in our new modern economy with "financial innovation" that seemingly knew no bounds.

There's no word on whether co-author David Rosnick also rents.


Anonymous said...

In the long run, we are all renters.

Anonymous said...

Speak for yourself. Find a low-tax area to live and you can do just fine.

Greg Hall said...

It's hard to find low tax areas where the schools are any good. Still, the only problem with this analysis is that it assumes renters save the difference (aka the cost of ownership), which is neither universal not constant.

Anthony J. Alfidi said...

Maybe the secret is that renters hold no mortage that can put them underwater when the portfolio asset they borrowed against (their house) declines. Their wealth in net terms is thus preserved while homeowners suffer.

Noz said...

Historically homes have never been great investments. If you're lucky enough to be born at the right an economy that is thriving, allowing you to make money, invest etc....AND get a return on your investment, RE becomes something boast about.

But in reality....most people are not fortunate and only average a 1-3% return on their homes in the long run.

That's why people who made big on RE need to STFU already admit that they got very lucky.

Anonymous said...

"Still, the only problem with this analysis is that it assumes renters save the difference (aka the cost of ownership), which is neither universal not constant."

true, but that's because some renters don't even EARN the difference. You can't save what you don't make in the first place.

Anonymous said...

Governments are short of funds > property tax go up while property values continue to fall. This will continue for quite a while. There will be no legislative solution. The problem will be solved when the system completely breaks down. Nobody wants to accept reality - cut all unnecessary spending. Follow the California for an advanced version of what confronts us at the national and international level. Why stand in front of the train? Get out now.

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