Whites now 20 times as wealthy as blacks, Hispanics lose 2/3rds of their wealth

[Berkut]

I am guessing that gap is almost entirely explained by home ownership rate differences?

[Martinus]

I am guessing that gap is almost entirely explained by home ownership rate differences?

I am not sure if this is the case. After all net worth should deduct any mortgage, so two families with a similar income and similar costs of living, one renting and one owning a home, should not have a vastly different net worth.

[Richard Hakluyt]

A mortgage becomes a pitiful sum after 15 years of payment though, for many people this is how they slowly build their net worth, it is why many people in the 40+ age bracket are better off than their gross incomes might imply.

[Berkut]

A mortgage becomes a pitiful sum after 15 years of payment though, for many people this is how they slowly build their net worth, it is why many people in the 40+ age bracket are better off than their gross incomes might imply.

Exactly. A mortgage means that you are building wealth. Median wealth for a white family is only ~100k$, that really isn't that much. I bet most of that is the equity in their home.

[DGuller]

I don't think you can reach any valid conlclusion based on the information presented.  Medians are generally better than averages, but they can be misleading in their own right if different groups follow different distributions.  We also have no measure of how negative net worth can get normally, without it becoming a disaster, so we don't know how serious that 2/3 median drop for Hispanics is.

[dps]

A mortgage becomes a pitiful sum after 15 years of payment though, for many people this is how they slowly build their net worth, it is why many people in the 40+ age bracket are better off than their gross incomes might imply.

Yeah, my mom's only income is her Social Security check, which is a good bit less than what my take-home pay is, but she owns her own home free and clear (the mortgage was paid off 35 years ago), so her housing costs are effectively zero, while mine take up a fair portion of my income.  She's able to have basically the same standard of living that I do on a lower income.

OTOH, that also shows the danger of using net worth as the only factor in someone's wealth.  My mom's net worth is probably about $10,000 without includinng her house;  with her house it probably was around $135,000 6 years ago and about $85,000 now.  But nothing has really changed;  yes, her house is worth less because of the falling real estate market, but she had no intent of selling it anyway, so from her POV, her net worth was about $10K both then and now.

[Martinus]

A mortgage becomes a pitiful sum after 15 years of payment though, for many people this is how they slowly build their net worth, it is why many people in the 40+ age bracket are better off than their gross incomes might imply.

Shouldn't mortgage payments be greater than rent payments, though? If so, after the same 15 years, the renting family should have more savings, presumedly.

[DGuller]

A mortgage becomes a pitiful sum after 15 years of payment though, for many people this is how they slowly build their net worth, it is why many people in the 40+ age bracket are better off than their gross incomes might imply.

Shouldn't mortgage payments be greater than rent payments, though? If so, after the same 15 years, the renting family should have more savings, presumedly.

It depends.

[Valmy]

Shouldn't mortgage payments be greater than rent payments, though? If so, after the same 15 years, the renting family should have more savings, presumedly.

If that was true how would you make any money renting out your place?

I pay less on my mortgage than I did for my rent and it is a bigger place.  But there are other costs to owning like having to fix stuff yourself.

[Martinus]

Shouldn't mortgage payments be greater than rent payments, though? If so, after the same 15 years, the renting family should have more savings, presumedly.

If that was true how would you make any money renting out your place?

I pay less on my mortgage than I did for my rent and it is a bigger place.  But there are other costs to owning like having to fix stuff yourself.

Conversely, if it wasn't true, why would anyone rent?

I don't think under normal circumstances, you should make enough on renting out a place to pay off your mortgage - otherwise you would effectively be getting your property for free, only with a time delay, which makes no sense.

Edit: I saw your correction about the additional costs. Yeah, count these in too. If you do, an owner with a mortgage should spend more money on his property than a tenant - which means the tenant should get extra cash to increase his net worth. 

Presumedly, under normal circumstances, the cash that the tenant gets to keep, if invested, should yield similar, if not better, results than the real property owner - if this was not the case, then everyone would invest into nothing but real property.

[Valmy]

Conversely, if it wasn't true, why would anyone rent?

Because owning ties to one location and owning is a pain.

[Valmy]

Presumedly, under normal circumstances, the cash that the tenant gets to keep, if invested, should yield similar, if not better, results than the real property owner - if this was not the case, then everyone would invest into nothing but real property.

Well the numbers in the US show that renters are NOT doing this they spend their money.  And almost everybody in the middle and lower classes net worth IS in their real estate property.

[Martinus]

Conversely, if it wasn't true, why would anyone rent?

Because owning ties to one location and owning is a pain.

Ok so by renting you get better mobility - which should translate into better profit.

The bottom line is this - assuming economical behavior of market actors, two families starting with equal capital, one of which one buys a real property with a mortgage and another one rents, should (subject to fluctuations of the market and relative profitability of real estate vs. other forms of investment) at the end of any period have broadly equal net worth.

So, you can't explain the vast differences shown in the study by home ownership vs. renting, unless the renters either earn less or waste their extra money (that they do not invest in real property) on shit, or both.

[DGuller]

And almost everybody in the middle and lower classes net worth IS in their real estate property.

Which is pretty terrible, if you think about it.  One shouldn't have all their eggs in one basket.

Of course, net worth is not a very good measure of wealth in itself.  It rarely accounts for income streams, whether fully guaranteed like pensions, or reasonably guaranteed like career income.

[Berkut]

The renters almost certainly earn less.

Buying is generally more long term advnatageous than renting, which is why most people who can buy do so. But to get a mortgage* you need a decent income, steady job, and good credit. Something many lower income households do not have, hence their lower net wealth.

*At least in theory, Barney Frank not withstanding.