Originally Published in USA Today | February 26, 2018 | By Elizabeth Mendenhall
The Feb. 18 guest column, “Why your home is a lousy investment when you think it’s great,” has two glaring omissions in it that would otherwise show that homeownership is indeed a solid investment for millions of middle-class Americans.
Outside of referring to it as “tiny,” Mr. Fisher’s column all but disregards one important thing: rent. His argument that investing in the stock market in lieu of owning a home conveniently omits the fact that an individual has to live somewhere. If they don’t own, chances are very good that they are renting at the mercy of another individual or company – their landlord – who clearly already realized the advantages of real estate as a great investment.
Being a homeowner means building equity over time and comes with tax incentives and a fixed monthly mortgage payment that acts as a forced savings plan, whereas rents – as almost every renter could tell you today – continue to climb far above incomes.
Mr. Fisher uses home prices in San Mateo County, Calif., for his example of the expected return a homeowner could have seen over a 10-year period before selling. Nowhere is it mentioned what the cost of renting is in that area. According to RentCafe.com, the average rent of a 3-bedroom apartment is currently $4,157, up 8 percent in the past three years.
During this same timeframe, local homeowners have seen the value of their home rise around 15 percent. While an 8 percent rent hike may be “tiny” to a billionaire like Mr. Fisher, it is very likely a cause of angst for a renter, who would have also missed the nearly double bump in wealth gains if they owned instead.
The second exclusion in the article is the fact that most middle-class Americans aren’t heavily invested in the stock market. Mr. Fisher makes it seem as if people have the time and knowledge to direct all of their cash into equities, watch it magically grow and retire as multi-millionaires. In reality, as this year’s volatility proves as a cautious reminder, the stock market comes with its own risks.
Countless studies show that most Americans aren’t saving enough for retirement. Thirty years from now, a retiring homeowner could very well have their mortgage fully paid off with the convenience of options, including living without monthly housing expenses or deciding to sell and using the sizeable equity gains towards fully (or mostly) covering their next home purchase. A renter after 30 years would have nothing, and would be relying on the unpredictability of a landlord and the stock market.
According to the Federal Reserve, a typical homeowner currently has a net worth of $231,400 versus only $5,100 for a renter. Diversification, including homeownership and a long-term savings plan that may include stocks, is the key to financial success.
Mr. Fisher does get one thing right: owning a home is great, it brings satisfaction and creates memories. There is a reason why 83 percent of homeowners think homeownership is a good financial investment: it works.