Report says the best way to build wealth is to buy a home

The preferred path to wealth may lead through the front door of your home and not through the stock market, according to a national research report. 

In a study for the National Association of Realtors, home equity- the difference between debts owed on a home a loan and the value of a home- accounted for 19 percent of household wealth. 

This catapulted housing ahead of stock assets as a source of wealth. Nearly six in 10 homeowners have more home equity than stock wealth.  

The study was conducted by the Joint Center for Housing Studies of Harvard University.  

That housing moves steadily ahead in comparison to the up-and –down effect of stocks is no surprise to some financial experts.  

“If you don’t own a home and are debating home ownership or more stocks, this would tell you to buy house”, says Gwen Thomas, of the Bank of America in Charlotte, N.C. “Stocks are an important piece of the financial picture, but you see higher yield in homeownership”.  

Home ownership appears to be much more readily available to people than stock holdings. Home ownership rates in 2003 grew to 68 percent while stocks were held by just over half of households. 

Thomas sees this broad appeal of housing as a common financial denominator for most consumers.

“Home ownership creates a broader chance for wealth across a broader group of people”, says Thomas. She says this is especially true among minorities for whom owing a home “is their best source of building wealth”. 

More than an investment
Yet the process of watching the worth of a home go up is almost an afterthought to quality-of-life issues for many homeowners. 

“Owning a home is someone’s piece of the pie”, says Thomas. “What we see is a two sided effect where owners get the lifestyle advantages but they also get boost in home equity and value”. 

The Federal Reserve Board puts the value of American homes at $15.2 trillion. Within this total, the accumulated amount of home equity exceeds the value of stocks owned by homeowners by a whopping $2.6 trillion.

Housing continues to be an important engine for the U.S. economy as a whole, notably when it comes to spending. The mere act of home ownership stimulates sales of products up and down the housing spectrum, from paint to appliances to furniture.

Low interest rates help
David Lereah, chief economist for the National Association of Realtors, is quick to point out housing has recently benefited greatly from low inters rates, making homes suddenly, and affordably, within reach for many.

Lereah says in 2003 a median-priced home consumed roughly 18 percent of a typical family’s income. In the early 1980s that figure was more than 30 percent.

Ironically, the growth in home equity gives millions of homeowners other investment options. Thomas says in addition to plowing the cash into improvements that raise the value of a home, homeowner’s also use this surplus to purchase- what else?- stocks.

“The decision on how to take advantage of all that equity can take on a lot of different turns”, says Thomas. “Some purchases you enjoy for a short time, then they’re gone. But more people are consciously deciding to funnel the money back into their home and then watching the value of their biggest asset continue to go up”.