Like most Americans, it’s home equity, not stock equity, that will pad my bank account when I hit the retirement finish line.
About two-thirds of Americans invest in home ownership, but only half of us invest in stocks. (I suspect this is in no small part because we have to make our mortgage payments every month or the bank comes and takes our houses back.)
The fact is, more of us are getting rich by buying and paying off our homes than by picking the next Facebook.
Here are some interesting facts from the National Center for Real Estate Research:
- 6 in 10 of us have more home equity than stock equity.
- One-fifth of Americans’ total net worth is home equity.
- Home owners accumulate, on average, $167,000 in their lifetimes, compared to $42,000 for renters.
- The median wealth for the poorest American home owners, those earning less than $20,000, is 81 times that of renters with similar income.
In a recent study that took into account falling home prices, buying was still more likely to generate wealth than renting, simply because renters are more inclined to spend instead of save and invest in stocks.
The bottom line is this: Even if renting appears cheaper on a spreadsheet, the forced savings of home ownership leads to wealth more reliably than renting. Many of us simply don’t have the willpower or motivation to save our discretionary income and invest it in stocks.
So unless you’ve got the inside track on the next hot future IPO, keep making your mortgage payments.
Granted, you will not see the equity in your home until you go to sell it. There is no good reason to use the equity in your home unless you are using the money to make an investment in that will give a better return than your home. But, for many of us, the equity in our homes is the majority of our net worth and, when the time comes that we do need to live off that money or, god forbid, go in a nursing home, that money will be available to make our later years more comfortable.
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