The Significant Influence of Owning a Home on Net Worth

If you're contemplating the choice between renting and purchasing a home this year, consider this compelling insight that can provide the clarity and confidence required to make your decision.

Every three years, the Federal Reserve issues the Survey of Consumer Finances (SCF), comparing the net worth of homeowners and renters. The latest report reveals that the average homeowner's net worth is almost 40 times higher than that of a renter (refer to the graph below):

A contributing factor to the wealth disparity between renters and homeowners stems from the appreciation of home value and the monthly mortgage payments that contribute to the growth of equity for homeowners. Homeownership entails a form of forced savings, with the monthly mortgage payment acting as an investment that pays off when the property is eventually sold. In contrast, renters do not experience a financial return on the monthly rent payments. Economist Ksenia Potapov from First American elaborates on this concept:

"Renters miss out on the wealth generated through the appreciation of house prices and do not enjoy the equity gains resulting from monthly mortgage payments..."

Take Control of Your Future with Equity Power

The primary driver of wealth accumulation for the average household is home equity, surpassing other factors. This remains consistent across various income levels, as indicated by data from First American and the Federal Reserve (refer to the graph below):

The blue segment in each bar indicates the contribution of home equity to a homeowner's net worth. According to this data, regardless of your income level, owning a home can substantially increase your wealth. Nicole Bachaud, Senior Economist at Zillow, further explains:

"The largest asset that many individuals will possess is a home. Homeownership serves as a crucial financial factor, unlocking stability and preserving wealth across generations."

If you're ready to start growing your net worth, the current real estate market offers several opportunities you should consider. For instance, with recent trends of lower mortgage rates, your purchasing power may be higher now than it has been in months. Moreover, the increasing inventory in the market provides more options for you to explore. A local real estate agent can help you understand the opportunities available today and assist you in finding your ideal home.

Bottom Line

If you're uncertain about the decision to rent or buy a home, remember that homeownership can contribute to long-term wealth growth, regardless of your income level. To explore further insights on this and the numerous advantages of owning a home, reach out to a local real estate agent.