“Stuck choosing between renting and buying? Here’s a powerful reason to lean toward homeownership: it’s a big driver of net worth growth.
The Federal Reserve’s Survey of Consumer Finances (SCF), released every three years, highlights the wealth gap between homeowners and renters—and it’s eye-opening.
On average, homeowners have nearly 40 times the net worth of renters. Take a look at the graph below to see this difference in action.
The Power of Homeownership for Building Wealth
In the prior report, homeowners had an average net worth of about $255,000, compared to just $6,300 for renters, a considerable disparity. The latest data shows that the gap has grown even larger, as homeowners continue to see significant increases in their wealth (see graph below):
The SCF report reveals something striking:
“. . . 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.”
A key factor in this wealth boost? Home equity.
Home equity is the difference between what you owe on your mortgage and your home’s current market value. You build equity by paying off your mortgage and as your home appreciates in value. In recent years, home prices have risen sharply due to a shortage of available homes. This imbalance has resulted in faster equity growth, contributing to an increase in homeowners’ overall net worth.
If you’re still unsure whether to rent or buy, here’s something to consider: While inventory has increased slightly this year, many areas still face a shortage. Expert predictions suggest that home prices will continue to rise next year, albeit at a slower pace.
While the explosive price increases from the pandemic may be over, buying a home now could still lead to meaningful equity gains. As Ksenia Potapov, economist at First American, puts it:
“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.”
Remember, prices and availability vary greatly by location. That’s why it’s beneficial to rely on a local real estate agent who knows the ins and outs of your area. They can provide valuable insight into local trends and help you understand the financial and lifestyle perks of owning a home. This advice is key to making a smart move. As Bankrate points out:
“Deciding between renting and buying a home isn’t just about cost — the decision also involves long-term financial strategies and personal circumstances. If you’re on the fence about which is right for you, it may be helpful to speak with a local real estate agent who knows your market well. An experienced agent can help you weigh your options and make a more informed decision.”
Bottom Line
If you’re on the fence about whether to rent or buy, keep in mind that homeownership can build wealth over time. And if it feels out of reach, let’s talk! We can explore programs that may make buying a home possible for you.