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I believe that as most of us grow and up and grow our families, we have a vision of leaving a legacy of some kind for future generations. That legacy often includes plans for providing some kind of monetary security in addition to other positive contributions we might make. That vision isn't always easy to map or achieve, however.
Matthew Rognlie, from the Department of Economics at MIT, recently released a paper: Deciphering the Fall and Rise in the Net Capital Share. Although the report itself is fairly complex, when distilled down one of the major findings of the report is that homeownership is and has been for the last fifty years a major component to family wealth.
An article on the study in The Economist notes one of the findings of the study:
“The return on non-housing wealth, in fact, has been remarkably stable since 1970. Instead, surging house prices are almost entirely responsible for growing returns on capital.”
This came as no surprise, as the Federal Reserve reported that the net worth of families that own their own home is 36 times greater than that of families that rent. Every three years the Federal Reserve conducts a Survey of Consumer Finances in which they collect data across all economic and social groups. Some of the findings revealed in their report include:
- The average American family has a net worth of $81,200
- Of that net worth, 61.4% ($49,856) of it is in home equity
- A homeowner’s net worth is over 36 times greater than that of a renter
- The average homeowner has a net worth of $194,500 while the average net worth of a renter is $5,400
Bottom Line
HousingWire’s Senior Financial Reporter, Trey Garrison, summed it up well in his reporting on Rognlie’s study:
“Homeownership has consistently created generational wealth more reliably, and more ‘democratically’, than any other asset class. And it does so in a manner entirely ancillary to its primary purpose of giving you a place to lay your head and keep your stuff.”
Interested in leaving a legacy for future generations? It appears that the best foundation you can have just may be home ownership!
