The Impressive Impact of Homeownership on Net Worth
If you're weighing the options of renting versus buying a home this year, consider this compelling point to help guide your decision.
Every three years, the Federal Reserve publishes the Survey of Consumer Finances (SCF), which contrasts the net worth of homeowners with renters. The most recent survey reveals that the net worth of the average homeowner is nearly 40 times greater than that of a renter (refer to the accompanying graph).
A key factor contributing to this wealth disparity is that homeownership allows for equity growth through property value appreciation and regular mortgage payments. These payments act as a kind of enforced savings, culminating in financial benefits upon selling the property. In contrast, renters do not experience a financial return on their monthly rent. Ksenia Potapov, an Economist at First American, notes:
"Renters miss out on the wealth accumulation from housing price increases and do not gain equity from mortgage payments..."
The majority of a homeowner's net worth typically comes from home equity.
This trend of equity being a principal wealth builder is consistent across various income levels, as data from First American and the Federal Reserve demonstrates (see graph).
The green portion of each bar in the graph indicates the proportion of a homeowner’s net worth derived from home equity. This data clearly shows that home ownership substantially enhances wealth, regardless of income. Nicole Bachaud, Senior Economist at Zillow, states:
“For most, their most valuable asset is their home. Homeownership is a crucial financial step that leads to stability and wealth preservation through generations.”
If you're ready to start accumulating net worth, the current real estate market presents several opportunities. For instance, with recent lower mortgage rates, your buying power might be stronger than it's been in recent months. Additionally, with an increase in market inventory, you have more choices to consider. A local real estate agent can help you explore today's opportunities and assist in finding your perfect home.
If you're uncertain about renting or buying, remember that homeownership can significantly enhance your wealth over time, regardless of your income level. To learn more about this and other advantages of owning a home, let’s connect.