It’s a debate that has been going on for a while now between two possibilities: renting or owning a home. Which one would prove to be more profitable in the long run? A new study called “A Revision of the American Dream of Home Owning”, published in the Journal of Housing Research and featured by inman.com brings forward an interesting approach.
When trying to accumulate wealth, one essential element is the homeowner’s commitment to save money for the down payment of the home, the study highlights. Although you might think that owning a home would make you more money, this research states otherwise. It seems that those who turn to investment in stocks and bonds may actually gain more in the long run. Taking a potential down-payment and making smart investments will probably leave you with more money than if you sank every penny into a house that may or may not be worth what you originally paid for it.
In terms of stability, the new research also makes the case that investing in a more controllable market such as the stock market is better than investing in a more unpredictable market like housing.
Not being tied in to a mortgage is definitely preferred by more and more people nowadays, Millennials and Baby Boomers alike. Renting is simpler and eliminates the constant worry of home maintenance and other unknown costs that might come with owning a home. Plus, renters have more flexibility if in need of a change.
However, the study’s authors don’t necessarily discard the fact that buying a property might also prove to be a clever idea for long-term wealth accumulation in the sense that it forces saving. “Society appears to have been telling people the right thing to do (own a home) but for the wrong reason, […] it appears that homeownership forces saving and when combined with the tendency of households to remain homeowners once they initially switch to ownership explains why owners have more wealth”, the study reinforces.
Everybody would agree that owning a home is a big part of the American Dream and although this might still be a valid option, it needs reinterpreting, according to Ken Johnson, one of the study’s authors. Buying a home paves the path towards wealth accumulation as long as it’s used as a strategy to create risk-adjusted returns.
All things considered, if posed with the two options, the study proves that renting a home and investing your savings in the stock market is certainly worth some serious consideration.