Comment by Den_VR 2 days ago
The numbers that interest me are comparing home ownership rates at various ages between the generational groups
Lots of research shows about a 8-10% gap, that only at very specific ages finally achieved parity.
The consequence of this is a difference in wealth building, economic security, and family planning for millions.
Why does home ownership on its own matter? Net worth is inclusive of housing and assets and debt. And net worth is a direct measure of the wealth that is being built.
Because homes are pretty much the only asset a millenial would have at that time that would have grown over time. a 08-9 graducate wouldn't really have much money to spar for stocks unless they made really lucky bets or happened to mine a fewbitcoin they forgot about.
Most all else would have inflated or depreciated.
401k and IRAs is where millennials should have their stocks and those have done very well over the years. There is little point in stocks elsewhere (unless you are very rich) since stocks are for long term investments and those two cover the retirement needs of nearly everyone (except the very rich), and there are few other savings needs people might have that stocks qualify for.
Remember you won't live forever (at least not to current medical knowledge, you can bet otherwise if you want), and you can't take it with you (according to most religions). Thus once you have retirement covered and emergency savings you should be spending everything you earn. You should have enough money left at the end of the month to afford the things you buy at the end of the month, but there is no point in any more, enjoy life with what you earn. (donating to charity counts as enjoying life!)
Someone posted this already but a more useful "net worth" is how big of a shock can take without paying multiples on the sticker price.
And even homes are now sieving into institutional buyers.
https://medium.com/newco/your-financial-shock-wealth-4845e6d...
Net worth is a funny metric.
Joe has a 300k house with 100k equity and 200k mortgage. He has 100k in stocks in a 401k. Net worth negative 100k.
Pete has $300 in his cheques account, and isn't eligible for loans or mortgage. Net worth positive $300
Obviously Joe is richer than Pete though.
> Obviously Joe is richer than Pete though.
Yeah, because Joe’s net worth is $200,000 and Pete’s is $300
House equity = current value - mortgage balance
You subtracted the mortgage twice, so your math is off by $200,000.00
This feels like one of those PEMDAS posts on facebook where everyone comes to different results and argues endlessly about it. So let me add my 2¢:
if you have 100K in equity and owe 200K on your mortgage, then you’re net -100K on your house
that combines with the 100K in the retirement account to produce a net worth of $0
Where is my mistake?
Net worth isn't equity - mortgage + 401k. Net worth is assets - liabilities. Equity is not an asset; the house is. So is the 401k. The mortgage is a liability. So Joe's net worth is 100k (IRA) + 300k (value of house) - 200k (mortgage) = 200k positive net worth.
(Another way of thinking about equity, specifically, is it is the real estate contribution to net worth, because it is what is left when you subtract the real estate liability (mortgage) from the real estate asset (value of house). That's why you shouldn't subtract the mortgage from the equity: equity is what's left after you've already subtracted the mortgage.)
(Edit: Adjusted sign in first equation to subtract mortgage. It's probably more technically accurate to keep it as addition and consider the mortgage to be a negative value, but I believe it's more straightforward and intuitive for most people as it is now represented.)
Joe’s net worth is $200k. Why on earth would you value the home at $0?
Net worth = assets - liabilities
To add to that, an unemployed 28 year old living with his parents in the house that they own is a "homeowner" in most of these homeowner stats.