CHICAGO, Nov. 11, 2014 /PRNewswire/ -- HelloWallet Holdings, Inc., a leading provider of online financial wellness and a Morningstar (NASDAQ: MORN) company, today published a new research paper, "House of Cards," which examines how the decision to rent or buy a home affects wealth creation for American workers. This paper brings a new perspective to families' unique decisions to buy or rent a home by analyzing the historical tax benefits and wealth-building opportunity costs of home ownership. Aron Szapiro, a consumer finance researcher for HelloWallet, authored the paper.
The paper includes two analyses. The first examines historical home purchase data from the Federal Reserve Board's 2013 Survey of Consumer Finances. Szapiro compares how much wealth Americans would have created had they rented a comparable home and invested any savings in a portfolio of stocks and bonds over the home ownership period. The second analysis looks at two hypothetical households—one earning $50,000 per year and the other $100,000—living in 20 major cities to examine the effect of state and local tax structures on the buy versus rent decision. HelloWallet's research finds:
- A median-income U.S. household ($50,000 in annual income) could generate more than 50 percent more net wealth over the next 10 years by renting and investing instead of buying a home.
- Median income homeowners realize no federal tax benefit in 75 percent of major cities.
- More than half of current homeowners, or more than 40 million households, purchased their homes during time periods when average homebuyers would have been better off renting and investing.
- Many popular, free, online "buy-or-rent" calculators inflate the benefits of home buying. The study shows that calculators provide inaccurate guidance to more than 90 percent of renters considering whether to buy a home by overestimating tax benefits and underestimating the returns an individual can earn by investing.
- Prospective home buyers should calculate their "rent-to-price" ratio, or the ratio of the annual rental costs of a home compared with its purchase price, to determine whether to by a home or rent and invest. If the rent-to-price ratio is 5% or less, people may be better off renting and investing any savings. If the rent-to-price ratio is greater than that, they may be better off buying a house.
"While there is no question that homes have become the most valuable asset for U.S. households, our research finds that homeownership is often not the best strategy for building wealth," Matt Fellowes, founder and CEO of HelloWallet and a former scholar at the Brookings Institution, said. "Workers need to take a hard look at other investment choices before deciding to buy a home. Employer-sponsored retirement or health savings programs, 529 college savings plans, or even IRAs may be more effective vehicles for families to build wealth and get ahead."
To read the paper, please visit http://www.hellowallet.com/houseofcards.
About HelloWallet Holdings, Inc.
HelloWallet partners with employers to provide independent and personalized financial guidance to employees through web- and mobile-based software applications. Using behavioral and consumer research and analytics, HelloWallet helps employees make the best decisions with their paychecks and the most of their benefits. HelloWallet operates a double bottom line business model: for every five subscriptions sold, HelloWallet donates one subscription to a family in need through a philanthropic partner. HelloWallet is headquartered in Washington, D.C. and is a wholly owned subsidiary of Morningstar, Inc. For more information, visit www.hellowallet.com.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on approximately 479,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 13 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $169 billion in assets under advisement and management as of Sept. 30, 2014. The company has operations in 27 countries.
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