Report: Renters Are Wealthier than Home 'Owners'

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.

Comments

[CoinMiner:]

Precious few in this country are able to determine the difference between an asset and a liability, debt and wealth, and a federal reserve note (debt) from a dollar (specie).

Given this state of affairs, is it any wonder that some will postulate the renters are 'wealthier' than the 'owners'. A true perversity. The section 8 HUD renters are so wealthy - such a productive slice of society - that they 'deserve' the new tax breaks while the rich/poor landlords deserve yet another tax increase. Has the pendulum swung to far yet?

Regrettably, no...

Mar 01 11:04 AM

[ubuy2w:]

All this report indicated is that in the past 5 years if you had a large mortgage in relation to your homes value your net worth has likely declined. at faster rate than individuals who did not have a large mortgage. It said nothing about the relative merits of home ownership vs renting, like most of your commentary Tim it is a mile wide and an inch deep

Mar 01 12:03 PM

[Conan the B...:]

A better place: I think you have solved the Foreclosure Glut.

Start Renting the Idle homes at below Apartment Rates in each area. This will hurt the Apartment sector, but we are trying to stem the Decline in Home Value.

Mar 01 01:57 PM

[ain't no fo...:]

Your "short time correction of a year or two" is now entering its 4th year

They aren't going to have to build anything for a long long time - its sitting there vacant.

I've been renting nicely furnished condos with phone and/or electric and always cable included at less than I would pay for an unfurnished apartment and way way way less than a home.. and no taxes, maintenance or insurance bills to boot... I live in FL 6 mos and the mountains of New England 6 mos. which gives me great weather year-round.


On Mar 01 08:28 AM abetterplace wrote:

> Tell me just when 2006 became a "long,long time". How old are you?
> 19.
> Also, I think 1% would look very good to 100% of stock holders of
> just about anything. If the time comes, other than a short time correction
> of a year or two,
> that Americans cannot make money with real estate , then we can
> all go to the house, lay down and die.
> I also wonder who would build anything for the renters to rent.

Mar 01 02:10 PM

[Gedankonomist:]

We're all renters. If you pay "property tax," then you are paying RENT to the government.

In fact, paying this kind of rent is worse than paying rent to a "landlord" since with the government landlord, you don't have any rights.

Mar 01 02:38 PM

[sunnsea:]

The best approach is to rent and the buy income producing property to keep cash flow going. Your own home is a liability on your individual balance sheet. The income producing property must have a rental income that is higher than your costs. Sounds obvious, doesn't it? How many "investors" did not pencil out the numbers before buying? How many saw that rents were not rising much if at all but property values were skyrocketing and bought anyway? It is going to take a lot of time and a lot of pain to sort all of this out. And when it's over, if you have $7500 cash in the bank, you will be considered a wealthy person.

Mar 01 02:47 PM

[henarl:]

Homeowners probably have more junk than renters since most of them used their homes as collateral for ever increasing loans and then used that money to buy SUVs, BMWs, granite counter tops, bathroom remodels, big screen TVs, etc. etc., and now all of that stuff is worth about 25 cents on the dollar and their McMansion is worth maybe 50 cents on the dollar.
Renters, on the other hand, have probably not over indulged themselves to the same extent and have lost nothing in the real estate market and therefor have more net worth left (unless they were heavily in the stock market).

Mar 01 03:33 PM

[Jugheadjack:]

Eliminate the mortgage deduction now!. Let's quit subsidising
debtor/speculators with the unfair morgtage tax deduction which means that they pay less taxes then responsibel homeowners and we pay more. I'm tired of seeing farms idle while the farmers ball caps are bent inwards looking in their mailbox for their checks for being idle. Farms are the biggest wefare program in America.

Mar 01 10:33 PM

[TsoyYeshcho...:]

Yes, it is true! Renting has allowed me to maximize 401(k) and IRA contributions yearly (and, no, I did not get maimed too much in the latest bear, by virtue of the same watchfulness that prevented me from buying a bubbleicious home). So here I sit, well poised. Some renters are the "smart money." Absolutely no action is warranted by the government to interfere in the housing market. The only party responsible for averting foreclosure is the mortgage borrower who fancies herself a "homeowner." Those who find themselves upside down on a mortgage should read "Popular Delusions and the Madness of Crowds." My condolences. Perhaps you can purchasing with greater wisdom in your next life. You may also wish to review that Brady Bunch episode with Greg and Peter discuss "Caveat Emptor." Moreover, there is no such thing as predatory lending. No gun was cocked at the time of mortgage signing. If you bought a home and find yourself in economic trouble, always remember, you had the prerogative to not buy. That was a choice you willfully avoided. And now, no governmental help is warranted. As Eddie Murphy sings in "Boogie in Your Butt," ..."Step aside, my friends, I've been doin' it for years." Step aside. The smart money shall enter the scene shortly, in about one to two years. If the government forces writedowns of mortgage principal in abrogation of the principles of contract law, it must simultaneously deal all renters a parallel and tax-free increase in net worth. We're not requesting that, however. We are requesting that the government stop pretending that it has a legitimate role in correcting individuals' poor purchase decisions. The government has no role in any of this. When you sign a mortgage contract, you are to be thinking forward 30 years through all kinds of economic conditions that may plague your ability to repay your loan. If you didn't, it is not suddenly my job to run up with the bedpan and help. It is a very simple economic calculation that many of we renters run daily in our minds, to determine if buying a home is yet warranted. If you conducted no such after-tax, cost-benefit calculation, you have nobody to blame except yourself for your current financial state.

Mar 02 12:45 AM

[Sell Home:]

I still feel that buying a house is better for long term.Renting a home is just like throwing money away while doing the same for your own home,you could build that equity.Current housing market is a great time to buy real estate if you have ok credit and job stability.You might even find some good deals on market.

Mar 02 04:21 AM

[3rd worlder:]

Right on Peter. Renting has always been the better deal than a mortgage. A well managed stock portfolio has always outperformed real estate over any period of time. However, they best advantage is freedom to play every weekend instead of wasting your time and money on home repairs for these real estate liabilities.

Mar 02 07:12 AM

[User 349950:]

What a joke it all is! Deregulation was foisted on us by the likes of Alan Greenspan, Larry Summers and Robert Rubin who was at Citi..yeah like he didn't get out of his shareholdings...before this debacle...Than Bill Clinton repeal's the "Glass-Stegal" act...the law that F.D.R. when the Great Depression was in full swing to protect against collusion between Investment banks,savings banks and commercial banks. That law was stripped away under Bill Clinton's tenure...thanks "Slick Willie"....of course no one, nobody,zippo..nada..as... him about this in the Media...but after their track record on w.m.d...how can you trust anyone in Government who after all are owned by the same gangsters akin to Bernard Madoff, who was head of the Nasdaq no less! No one is there to correct this...maybe Eric Holder, the new Attorney General....nah....he pardoned Marc Rich...another gangster who paid millions to "Slick Willie's" presidential library...buts that's o.k....we can trust him....maybe we can trust Timothy Geithner..who as head of the New York Fed...was asleep....did a Rip Van Rinkle...in his oversight of Wall Street...wasn't that his job...oversight...yeah right! We can trust him when he didn't remember to pay his taxes at the IMF...so that's who Obama has back in his cabinet to steward the economy amist surging deficit spending and future run away inflation.....meanwhil... the gangsters who own the politicians are all laughing on the way to the bank...the one off shore
while you get the pink slip,cruch pensions and unemployment!

Mar 02 01:13 PM

[Migs:]

We were potential first time buyers a year or two ago but right before we were about to pull the trigger on a 3 bed/ 3 bath townhouse for 400k, I did some math.

I added up loan interest, HOA, insurance and property tax on the house. I classified these as expenses that were NOT building equity and just basically throwing money out the window. I then subtracted any tax break I might get from paying interest and tax.

The number I came up with was roughly $2500 per month

I looked around on craigslist and found a 4 bedroom single family home in a nicer area renting for $2600 a month.

My decision was easy.

So to those people saying that renting is throwing money out the window, take off the blinders and realize that you're throwing money away no matter what. the only question is do you also want to be trapped in the same residence and grow grey hairs about depreciation while you're doing it.

Mar 02 03:50 PM

[FP:]

This is an absurd statement as those who agree it. Only a looser can believe it. How can you compare living in your own property doing whatever you want including renting part of it to make extra $ to rent to pay someone's debts ?. At the end of year what do you get back ? - nothing!

Mar 02 07:33 PM

[djhives:]

you MORANS yammering on about housing. Renting has ALWAYS been better -- forever.... in 1980 it was better, in 1990, in 2000, and in 2010 it will always be better! Sheeple just seem to love boxing themselves in a prison! What part of renting is cheaper is hard to understand? The article is false though - I am an economist and I saw this coming YEARS ago, back before you morans knew how to spell sub-prime. TO you IDIOTS who STILL think 'buying' is better. Learn this word: DEBT. That's what happens when you "buy". You're not buying anything - you're getting into DEBT! Sheep often ask me - "when you rent what do you have to show at the end of the year for it" -- I go "MY MUTHER-F*CKING SAVINGS!! - HOW BOUT YOU!!" ... then they'll rambel on about something called equity.. which is another name for more DEBT!! IDIOTS! Let the sheeple be victimized. this is what they have demanded over and over and over - let them keep borrowing, and getting in debt, and 'feeling good about it'.

The cattle just dont understand that you have to PAY to live. You cant short cut life by just borrowing to get a house and expect that you dont have to do anything but make little payments while your 'equity' build up...LOL get a brain morans! Or better yet, learn the hardway ..you BUBBLETARDS!

Mar 02 11:07 PM

[Erickson:]

After the tirade above, I just HAVE to respond.

Not so simple, djhives. Like everything else in life, there is no one "right" answer for every person. It depends on individual circumstances and local market cycles. Generally speaking, if owning costs the same or less than renting, you are better off in the long run buying your home. At the end of your working life you won't have to pay mortgage or rent. This imputed rent, an amount not having to be paid from labor or investment income, is the economic reward for buying.

On the other hand, if owning costs substantially more than renting, studies show that renting and saving the difference usually results in more liquid wealth at the end of 30 years. Few have the self discipline to save the difference, however. At what point you buy in the local market cycle is also a factor, and the investment returns on your savings.

Alas, such an observation resonates more in relatively normal times.

At the moment, America is coming down off a Housing Religion high, the likes of which have never been seen before. Those who caught the spirit put most of their resources into their house, with lots of remodeling and new furniture to boot. Little wonder they now have less nominal wealth, as the bubble deflates, than their apartment dwelling brethren who never caught the fever.

Most folks want black and white "truths" instead of muddling through all these gray areas. So they will continue to claim that either buying or renting is better. The more insecure they are, the louder they yell. Ignore them and look at your own circumstances, along with the market. The best path will reveal itself if you take the time to understand.

Mar 03 10:55 AM

[john1:]

Just more unpatriotic negativity from liberals who hate America, Ronald Reagan, freedom, and the troops.

Mar 03 08:13 PM

[dhengineer:]

Interest on the principal is nothing more than "rent" that you pay for a different line item. One does not throw rent money away, it goes to pay for the roof over your head. As a renter, you still have the standard deduction, which is $10,000 for a married couple. Your "interest deduction" is worthless below that level. Said another way, you only get an extra deduction for the rent and taxes paid above the standard deduction. If, as an owner, you pay $18,000 a year for interest/taxes ($1500 a month), and you are in the 20% tax bracket, your tax advantage for ownership is really only $1600 for the year (18000 minus 10000, times 20 percent). That's $133 a month. Your maintenance and miscellaneous costs are probably more than that, if you are taking care of your home properly. So, if $133 a month is a deal-breaker, you shouldn't be owning a home in the first place.

Just remember: interest and taxes are just another form of rent!


On Mar 02 04:21 AM Neils2009 wrote:

> I still feel that buying a house is better for long term.Renting
> a home is just like throwing money away while doing the same for
> your own home,you could build that equity.Current housing market
> is a great time to buy real estate if you have ok credit and job
> stability.You might even find some good deals on market.

Mar 03 11:51 PM

[blasted:]

One cost of ownership is the loss of mobility. Mobilty can be the key to sucess. Just asks the jews in Germany. Owners stuck around will the renters boogyed. For some good shoppers it has always been cheaper to rent than own. Lots of owners under rent their property for one reason or anouther. Particulary high end single family.

Mar 04 01:45 PM

[joof:]

I bought in 96. I now pay much less in mortgage and utilities and taxes than I would pay to rent. And next year I will pay about the same. I pay only a little more than I paid per month 5 or 10 years ago

If you rent can you say the same? How have YOU hedged your housing carry?

Mar 04 04:54 PM