Trying to decide between renting or buying a home? One key factor to consider is how much homeownership can grow your net worth. The difference may surprise you.
Every three years, the Federal Reserve Board releases the Survey of Consumer Finances (SCF), which highlights the wealth gap between homeowners and renters. Spoiler alert: homeowners consistently come out ahead.
The Numbers Speak for Themselves
On average, a homeowner’s net worth is nearly 40 times higher than a renter’s. In the previous SCF report, homeowners had an average net worth of $255,000 compared to just $6,300 for renters. Fast forward to today, and the gap has widened even further as homeowners continue to see their wealth grow.
Here’s what the SCF says about this remarkable change:
“. . . 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.”
Why Homeowners Build Wealth
One major driver of homeowner wealth is equity, which is the difference between your home’s value and what you owe on your mortgage. Equity grows in two ways:
- Paying Down Your Mortgage: Each payment reduces your debt and increases the portion of the home you truly own.
- Rising Home Values: When property values increase, your home equity grows even faster.
Over the last few years, rising home prices have significantly boosted equity for homeowners. That growth came from a supply-demand imbalance, where there weren’t enough homes available to meet buyer demand.
Even as the housing market shifts, inventory in most areas remains tight, and experts forecast that home prices will continue to rise at a more moderate pace in the coming years. This trend means there’s still potential for equity gains if you buy a home now.
As Ksenia Potapov, Economist at First American, explains:
“Despite the risk of volatility in the housing market, homeownership remains an important driver of wealth accumulation and the largest source of total wealth among most households.”
Should You Rent or Buy?
The choice between renting and buying isn’t just about monthly costs—it’s about long-term financial strategy and your personal circumstances. Homeownership has the potential to grow your wealth over time, but it’s not a one-size-fits-all decision.
If you’re unsure what’s best for you, lean on a trusted real estate agent. They’ll help you understand local trends, inventory levels, and price forecasts. And if affordability feels like a hurdle, don’t count yourself out just yet. Many programs exist to help make homeownership more accessible, and a knowledgeable agent or lender can guide you through your options.
Bottom Line
If you’re weighing the decision to rent or buy, keep in mind the significant wealth-building opportunities that come with homeownership.
Have questions or want to explore your options? Reach out today to schedule a complimentary consultation. We’ll help you evaluate what works best for your financial goals and personal situation!
November 7, 2024/by KCM CREW
