The Net Worth of Homeowners Has Soared

Homeowner Net Worth Has Skyrocketed

If you're contemplating the choice between renting and buying a home, a crucial piece of data from the Federal Reserve Board's Survey of Consumer Finances (SCF) might bolster your decision-making confidence. Released every three years, the report delves into the disparity in net worth between homeowners and renters, and the findings reveal a substantial gap between the two.

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 prior edition of the report, the average homeowner's net worth stood at approximately $255,000, while that of the average renter was $6,300. However, in the latest release, the gap expanded significantly as homeowner net worth experienced a substantial increase. According to the Survey of Consumer Finances (SCF) report:

". . . 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.

Over the past few years, often referred to as the 'unicorn' years for housing, home prices experienced a significant surge due to a shortage of available homes and a surge in buyers taking advantage of historically low mortgage rates. This supply-demand imbalance propelled prices to new heights, leading to substantial equity growth for most homeowners during that period.

If you're still contemplating whether to rent or buy, you might be wondering if you missed out on the substantial net worth boost. However, it's essential to understand that there are steps you can take to enhance your net worth in the coming years, and buying a home is one such strategy. As a recent article in The Ascent points out:

"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."

Historically, home prices tend to appreciate over time. Even with mortgage rates currently in the 7-8% range, prices continue to rise in many areas due to a persistent supply-demand imbalance. Expert forecasts for the next few years predict ongoing appreciation, albeit at a more typical pace for the housing market.

While it may not match the unprecedented surge of the past few years, those who purchase homes now are expected to continue building equity in the years ahead. Therefore, if you're ready and able to buy a home today, you're making an investment that will contribute to growing your net worth in the long run.

As 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're still undecided about whether to rent or buy a home, it's worth noting that homeownership has the potential to significantly enhance your net worth over time. To explore this further, along with the myriad other advantages of owning a home, consider reaching out to a local real estate agent who can provide valuable insights.

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