Homeownership long has been part of the American dream. However, in a July 2015 report, researchers at St. Louis Federal Reserve said that to build wealth, it might be a good idea for a young family to delay the purchase of a home.
“Those groups of families with heavier exposure to housing tended to do worse over time,” says William Emmons of The St. Louis Fed, although the report didn’t quantify how much worse.
One reason young families might be hurt by homeownership is because housing investments typically produce relatively low returns over time, Emmons tells Consumers Digest. A young person who sinks a large chunk of his/her money into a home has less to invest in better wealth-building assets, such as stocks or mutual funds, and typically goes into more debt to do it, Emmons says.
That isn’t to say that no one should buy a home in his/her 20s. It comes down to debt and financial flexibility, Emmons says. He suggests that consumers are financially ready to buy when the purchase won’t put them into uncomfortable or unmanageable debt—commonly regarded as total debt payments of at least
30 percent of income.