The Net Worth of Homeowners Has Skyrocketed

If you're debating whether it's better to rent or buy a house today, here's one important statistical factor that might help you feel more secure in your decision. Every three years, the Federal Reserve Board releases the Survey of Consumer Finances (SCF). That report covers the difference in net worth for both homeowners and renters. Spoiler alert: the gap between the two is significant.

The average homeowner’s net worth is almost 40X greater than a renter’s. And here’s the data to prove it (see graph below):

The Big Reason Homeowner Net Worth Is So High

In the previous version of that report, the net worth of the average homeowner was roughly $255,000 and that of the average renter was $6,300. But in the release that just came out this year, the gap widened as homeowner net worth climbed dramatically. As the Survey of Consumer Finances (SCF) report says:

“. . . the 2019-2022 growth in median net worth was the largest three-year increase over the history of the modern SCF, more than double the next-largest one on record.”

One of the biggest reasons homeowner net worth skyrocketed is home equity.

Home prices have skyrocketed in recent years, regarded as the 'unicorn' years for property. This was due to a lack of available properties for sale, as well as a large flood of purchasers eager to take advantage of the then-record-low mortgage rates. Because of the supply-demand imbalance, prices continued to rise. As a result, most homeowners who owned a home at the time saw their equity expand significantly.

If you’re still in the middle of making your decision on whether to rent or buy, you may wonder if you missed the boat on the big net worth boost. But here’s what you need to realize. As a recent article in The Ascent explains:

“Whether your net worth increased in recent years or not, there are steps you can take to boost that number in the coming years. . . buying a home can be a great way to grow your net worth, since home values have a tendency to rise over time.”

Home prices have historically risen over time. Even if mortgage rates are closer to 7-8%, prices are still growing in many regions of the country due to a lack of supply in comparison to demand. As a result, expert projections for the next several years predict further appreciation - but at a slower rate than is customary for the property market.

While it likely won’t be the record ramp-up that happened over the last few years, people who buy now should continue to grow equity in the years ahead. That means, if you’re ready and able to buy a home today, you’ll be making an investment that’ll help build your net worth in the long run.

As Jessica Lautz, Deputy Chief Economist at the National Association of Realtors (NAR), says:

“. . . when deciding to rent vs buy, one must calculate the total cost of homeownership (maintenance, utilities, commuting, etc.) and the total financial benefit. Based on new Fed data . . . the median net worth of homeowners was $396,200 vs renters at $10,400. There is no question about the wealth gains that homeownership provides.”

Bottom Line

If you're debating whether to rent or purchase a property, keep in mind that owning may significantly increase your net worth over time. Let's talk about it if you want to learn more about this or the many other advantages of owning a property.

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