johnnymk

http://seekingalpha.com/article/1233...urce=commenter

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.

"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.

zippyjuan

I am wealthier than a renter because even with the price drop I am paying less than they would for a comparable property. I will be even wealthier when I get it paid off because I will no longer have any mortgage payment while they will continue to pay rent the rest of their lives (unless they eventually do buy) and their rents will go up in the future while mine will not.

Short term- people who bought a home in the last four or five years may have a home which is worth less than the amount they paid for it but in the long run will come out better (assuming they eventually pay off the home otherwise they will be almost the same as renters).

The value of a house does not matter as far as wealth is concerned until you actually sell it- just as the price of a stock does not matter what it does in between the time you bought it and when you sell it. The losses (or gains)are on paper only.

Home buyers still hold an asset after they make their payments. A renter has zero asset at the end of each month for their payment. Schif does have one point correct,

If you do not have a home paid for when you retire or are renting then you need to have saved up enough money to achieve a rate of return equal to your rental to be in the same position of somebody who has paid for their home. That means you have to have a lot more money to have the same standard of living. This is where buying a home CAN help you fund your retirement- not so much as giving you more money but by getting rid of that expense which is the same thing as having more money.

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brainsmile

I have to say there is an exception to the rule. I agree with zippy. I am wealthier than the average renter.

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Daedalus

Kind of a broad view, and I disagree in general. What do you mean by "come out better"? Better than who? People who never buy and always rent, or people who will rent until 2012 and then buy? The answer may well be neither. Economically people who aren't leveraged up on an expensive, depreciating asset are better off than those who are. Homes around me are losing around 1% per month in value...$5k/month on a $500k home. That's what the hard data is telling me. Your long term view is probably true, but that's the view that too many people held while paying far too much for the homes they're either walking away from or being thrown out of. "It's OK if I overpay, because real estate always goes up in the long run." After adjusting for inflation, home prices may not reach their previous highs for 20+ years. Stocks are an even worse example. A stock that is down 30% may only be a paper loss, but that stock may not ever recover. "Only a paper loss" is small consolation if that comany goes bankrupt. Bad purchases affect wealth and net worth. If you overpay for something, your profit will be less (or losses greater) when you do sell.

Renters in bubble areas were paying less than 1/2 for housing than people who bought during the bubble in the same areas. And rents have actually been going down and will likely remain depressed at least through the end of this recession (a perverse side effect of this whole mess). My mortage payment is fixed. Renters are free to save and invest that difference, or to spend it.

It's very telling how many people are walking away from their homes even though they can afford their mortgages. They are tired of spending half their income on something that's worth 30% less than what they owe on it. Even 5 years of paying down a 30-year fixed mortage covers less than 10% of the principal balance; the other ~90% was rental costs on the borrowed money. I have an issue with these people walking away, but I certainly agree it's in their financial best interest. I firmly believe that by the time the "failure to pay as agreed" mark has fallen off their credit histories, they will still be able to buy a home similar to the one they let fall into foreclosure for less than what they originally spent.

I agree with almost everything you say Zippy, but not on this.

VTGreg

This information doesn't really come as a shock. I would imagine that many people, myself included, have purchased homes in the past 3 or 4 years and those that haven't purchased homes have leveraged their homes via equity lines. I assume your home equity is part of this calculated wealth. As such, it makes sense that renters are wealthier since they haven't suffered the same 20-30% loss in their home value.

Those that are ready to buy right now and have very good credit can make a killing but I wonder how many first time home buyers are going to be kept out of the housing market because they are unable to secure financing.

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DarkFury

Honestly, I have way too much "accumulated stuff" to be a renter.

If I were to rent a house the size of the house I live in, I'd probably pay 30 to 40% more in rent versus my current expenses. Of course, houses have maintenance costs, but over time, the house is still a better bet than rent (especially after you add in the tax effect of a home mortgage).

If I had no major commitments and wasn't semi-tied to my current area, renting might make sense, but as it is... it is better to just keep the house and buckle down against the slowing economy. My only regret is that I am not in a position where I could take advantage of some of the great house deals available now. I need MORE room, but honestly, I can't even think about trying to buy a new house right now.

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renovation

i fully agree to.
also if push came to shove i could sell my home and get some cash out. if you rent there is no cash to be had -you have nothing of value to sell. except if you happen to in that 1 in a zillon apartment. were someone just has to have it and would be willing to pay for you to leave to have it.

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Chgoman

I love it when people make data fit their views. Let's see, I'm going to write an article about how people who bury all thier cash in a tin can in the back yard are better off than people who have invested in the stock market in the last 2 years. Hmmm...

The real question to ask the writer isn't about the past, it's about the future. Will renters be better off 5 or 10 years from now if continue renting or if they buy now with low interest rates and current prices.

zippyjuan

You could certainly make the arguement that people who did not invest in the stock market in the last five years are better off than those who did. But what did they do with their money instead? If the non- stock people spent it are they better off? The stock (like the housing people) still have an asset which could still become worth more and can be resold- getting back at least part of their money. Renters or non- investors have nothing remaining of their money once it is spent.