The Soaring Net Worth of Homeowners

For those pondering the decision of whether to rent or buy a home, a key data point might just tip the scales. The Federal Reserve Board's Survey of Consumer Finances (SCF), released every three years, provides insights into the net worth of both homeowners and renters. The revelation? The average homeowner's net worth is nearly 40 times greater than that of a renter, a substantial difference that could sway your decision-making process.

The Net Worth Gap:

The SCF report unveils a significant gap in net worth between homeowners and renters. The average homeowner's net worth has soared, as illustrated in the graph below:

In the previous report, the average homeowner's net worth stood at around $255,000, while the average renter's net worth was a modest $6,300. However, the most recent release reveals a dramatic increase in homeowner net worth, marking the largest three-year growth in the history of the modern SCF. The report notes,

". . . 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."

The Driving Force: Home Equity:

A primary contributor to the exponential growth in homeowner net worth is the surge in home equity. The past few years, often referred to as the 'unicorn' years for housing, witnessed a frenzy in homebuying due to limited supply and increased demand. Skyrocketing home prices led to substantial equity gains for homeowners.

For those still contemplating the rent-or-buy decision, it's essential to recognize that the opportunity to boost net worth through homeownership is not a thing of the past. As stated in a recent article in The Ascent:

"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."

The Future Outlook:

Historically, home prices exhibit an upward trajectory over time. Even with mortgage rates inching up, many areas still experience price appreciation due to the ongoing supply-demand imbalance. Forecasts suggest continued appreciation, albeit at a more typical pace for the housing market.

While the rapid surge of recent years may not repeat, buying a home today remains a sound investment for building long-term equity. Jessica Lautz, Deputy Chief Economist at the National Association of Realtors (NAR), emphasizes:

". . . 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 find yourself at the crossroads of renting or buying, remember that homeownership is a potent tool for significantly boosting your net worth over time. Eager to explore the benefits of owning a home? Let's connect and chart your path to wealth through homeownership.