Homeownership Has a Significant Impact on Net Worth

If you are trying to decide whether to rent or buy a home this year, here's a powerful insight that could provide you with the clarity and confidence you need.

Every three years, the Federal Reserve releases the Survey of Consumer Finances (SCF), which compares net worth for homeowners and renters. The latest report shows the average homeowner’s net worth is almost 40X greater than a renter’s (see graph below):

One reason for the wealth gap between renters and homeowners is that when you own a home, your equity grows as the value of your home increases, and you make your mortgage payment each month. When you own a home, your monthly mortgage payment acts like a form of forced savings, which eventually pays off when you decide to sell. When you own a home, your monthly mortgage payment acts as a form of forced savings that pays off when you decide to sell. Ksenia Potapov, Economist at First American, explains it like this:

“Renters don’t capture the wealth generated by house price appreciation, nor do they benefit from the equity gains generated by monthly mortgage payments . . .”

The Largest Part of Most Homeowner Net Worth Is Their Equity

Home equity does more to build the average household’s wealth than anything else. According to data from First American and the Federal Reserve, this holds true across different income levels (see graph below):

The green segment in each bar represents how much of a homeowner's net worth comes from their home equity. Based on this data, it's clear no matter what your income level is, owning a home can really boost your wealth. Nicole Bachaud, Senior Economist at Zillow, shares:

“The biggest asset most people are ever going to own is a home. Homeownership is really that financial key that helps unlock stability and wealth preservation across generations.”

If you are ready to start accumulating wealth, the current real estate market provides several options to consider. For example, with mortgage rates recently trending lower, your purchasing power may be higher than it has been in months. And, as more inventory enters the market, you will have more options to consider. A local real estate agent can walk you through your current options and guide you through the process of finding your dream home.

Bottom Line

If you are unsure whether to rent or buy a home, keep in mind that owning a home can increase your overall wealth in the long run, regardless of your income. Let us talk more about this and the many other advantages of homeownership.

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