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Homeownership beats renting, study shows

Renters generally are viewed as the winners and homeowners as the losers in the wake of the passage of the recent Republican tax overhaul.

But a recent study by the Washington, D.C.-based think tank the Urban Institute suggests that homeowners will continue to have the upper hand over renters, even if fewer homeownership tax perks are available to them.

homeownerurbanUrban researcher Laurie Goodman and Columbia University's Christopher Mayer compared the costs of homeownership versus renting between 2002 and 2016.

The study doesn’t directly address the implications of the recent tax changes, but does make a strong case for homeownership even with reduced tax benefits.

According to the Urban’s analysis, homeowners did better than renters even when they didn’t take advantage of the mortgage interest deduction (MID) that applies to homeowners. This is significant because the recent tax changes will water down that tax break starting this year by drastically reducing the number of people who will itemize. 

The headline finding of the study is that a homeowner who purchased a median-priced home in 2002, and continued to own it through 2016, saved a significant, and increasing, amount of money in most years by owning a home, as opposed to renting a similar home. For homeowners who took advantage of the MID and had owned their home for that 14-year period, the savings versus renting would be $7,271 in 2016, the Urban Institute estimated. For people who didn’t get the tax break, the estimated savings was $5,827 for that year.  

Owning a home also has generally been a much better investment than putting money into the stock market or bonds. In 2016, for example, a homeowner had an annualized return of 10 percent without the tax benefit and 14.3 percent with the tax benefit, the study says. For the same year, the S&P 500 Index had after-tax returns of 5.9 percent, and bonds yielded a return of 2.8 percent.

The research assumes a homeowner bought a median-priced home ($134,000) in 2002, took out a 30-year fixed mortgage with a 20 percent downpayment and refinanced in 2012.

There are some caveats. In the first few years of homeownership, it is typically more costly to own a home than rent, according to the Urban Institute analysis. It also matters where the home is located. In 2016, the return on equity for a median-priced home for homeowners who received a tax benefit ranged from 2.1 percent in Cleveland to 15.1 percent in Los Angeles. 


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