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Homeownership a big wealth-builder

Owning a house offers many satisfactions, including one that probably is not immediately apparent to cash-strapped first-time buyers - your house can be a tremendous wealth-builder.

When you look at the net worth of the average household - net worth being how much money you have left in the world after subtracting debts from assets - the difference between renters and homeowners is always startling.The latest figures from Harvard's Joint Center for Housing Studies show that in 1995, homeowners had a median net worth of $102,170. For renters, the figure was $4,750.

Part of the reason, of course, is that many homeowners earn more than many renters. But the center said that even among people of similar incomes, "the disparity is considerable.

"For example, renters with annual incomes of $50,000 or more in 1995 had a median net wealth of $50,700. For homeowners with similarly high incomes . . . median net wealth totaled $180,840."

In most households, despite the booming stock market and economic good times, home equity still accounts for a substantial portion of family wealth. "In fact, half of all homeowners in 1995 held at least half of their net wealth in home equity," the Joint Center said.

Among minority homeowners, home equity accounts for an even larger percentage of overall wealth - almost 75 percent for blacks and close to 69 percent for Hispanics. The Joint Center points out that home equity is not a rate of return on your home purchase - it is the money that accumulates as the house rises in value and as you pay down your mortgage.

Although blacks and Hispanics still have much lower home ownership rates than whites, both groups have made substantial progress recently. The Joint Center said that in the past three years, 460,000 Hispanics became homeowners - "an impressive 16 percent increase" - and blacks and other minorities also boosted their numbers.

Between 1993 and 1996, home ownership rates among whites rose from 70.2 percent to 71.6 percent; for blacks from 42 percent to 44.3 percent and for Hispanics from 39.4 percent to 41.2 percent.

A major reason for this surge is that houses have become more affordable in the past decade, helped along by single-digit mortgage interest rates and more stable housing prices.

The center said that between 1982 and 1993, the share of income devoted to mortgage payments in the average household dropped from 34 percent to 20.2 percent and "although up slightly in 1996, the after-tax mortgage burden was still an affordable 22 percent."

By contrast, the report said, rents have remained high, falling just slightly in this decade from a peak in 1987. "Although they are only one of many factors in the homebuying decision, high rents - at least relative to current mortgage terms - are undoubtedly helping to sustain today's homeownership boom."