The Dramatic Impact of Homeownership on Net Worth

<article class="post-904739 post type-post status-publish format-standard has-post-thumbnail hentry" id="post-904739"><span class="entry-date">January 11, 2024</span><div class="entry-header center-block text-center"><h1 class="entry-title">The Dramatic Impact of Homeownership on Net Worth</h1><div class="shareBlock"><div class="shareTitle">Share</div><div class="shareIcons"><a aria-label="Twitter Share Link" class="twitter solid display-inline-block" data-tracking="Post,Social Post Link Clicked,Twitter" href="http://twitter.com/share?text=The+Dramatic+Impact+of+Homeownership+on+Net+Worth&amp;url=https%3A%2F%2Fgilliggroup.com%2Fblog%2Fthe-dramatic-impact-of-homeownership-on-net-worth%2F" target="_blank"><span class="force-hidden">Twitter</span></a>
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</div></div><div class="post-tax post-category"><span></span><a href="../category/realtor-blog/index.html" rel="tag">Realtor Blog</a></div><div class="post-tax post-post_tag"></div></div><div class="entry-content"><div><img alt="The Dramatic Impact of Homeownership on Net Worth Simplifying The Market" decoding="async" loading="lazy" src="https://media.agentaprd.com/sites/222/20240111-The-Dramatic-Impact-of-Homeownership-on-Net-Worth.webp" style="display: block; margin-bottom: 5px; clear: both; max-width: 100%;" width="358"/>
<p>If you’re trying to decide whether to rent or <a href="https://www.simplifyingthemarket.com/2024/01/03/thinking-about-buying-a-home-ask-yourself-these-questions/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">buy a home</a> this year, here’s a powerful insight that could give you the clarity and confidence you need to make your decision.</p>
<p>Every three years, the <em>Federal Reserve</em> releases the <a href="https://www.federalreserve.gov/publications/files/scf23.pdf" rel="noopener noreferrer" target="_blank">Survey of Consumer Finances</a> (SCF), which compares net worth for homeowners and renters. The latest report shows <strong>the average homeowner’s net worth is almost 40X greater than a renter’s</strong> (<em>see graph below</em>):</p>
<p><a href="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240110/20240111-Homeowner-Net-Worth-Almost-40x-greater.png" rel="noopener noreferrer" target="_blank"><img decoding="async" src="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240110/20240111-Homeowner-Net-Worth-Almost-40x-greater.png"/></a></p>
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<p>One reason a wealth gap exists between renters and <a href="https://www.simplifyingthemarket.com/2023/11/23/why-homeowners-are-thankful-they-own/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">homeowners</a> is because when you’re a homeowner, your <a href="https://www.simplifyingthemarket.com/2023/08/07/four-ways-you-can-use-your-home-equity/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">equity</a> grows as your home appreciates in value and you make your mortgage payment each month. When you own a home, your monthly mortgage payment acts like a form of forced savings, which eventually pays off when you decide to sell. As a renter, you’ll never see a financial return on the money you pay out in rent every month. Ksenia Potapov, Economist at <em>First American</em>, <a href="https://blog.firstam.com/economics/building-wealth-brick-by-brick" rel="noopener noreferrer" target="_blank">explains</a> it like this:</p>
<blockquote><p><em>“Renters don’t capture the wealth generated by house price appreciation, nor do they benefit from the equity gains generated by monthly mortgage payments . . .”</em></p></blockquote>
<h4><strong>The Largest Part of Most Homeowner Net Worth Is Their Equity</strong></h4>
<p>Home <a href="https://www.simplifyingthemarket.com/2023/08/15/equity-is-a-game-changer-for-homeowners-looking-to-sell/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">equity</a> does more to build the average household’s wealth than anything else. According to data from <a href="https://blog.firstam.com/economics/building-wealth-brick-by-brick" rel="noopener noreferrer" target="_blank"><em>First American</em></a><em> </em>and<em> </em>the<em> </em><a href="https://www.federalreserve.gov/econres/scfindex.htm" rel="noopener noreferrer" target="_blank"><em>Federal Reserve</em></a>, this holds true across different income levels (<em>see graph below</em>):</p>
<p><a href="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240110/20240111-housing-piece-of-net-worth-is-crucial.png" rel="noopener noreferrer" target="_blank"><img decoding="async" src="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240110/20240111-housing-piece-of-net-worth-is-crucial.png"/></a></p>
<p></p>
<p>The green segment in each bar represents how much of a homeowner’s net worth comes from their home equity. Based on this data, it’s clear no matter what your income level is, owning a home can really boost your wealth. Nicole Bachaud, Senior Economist at <em>Zillow</em>, <a href="https://www.newsweek.com/housing-crisis-could-death-knell-americas-middle-class-1848936" rel="noopener noreferrer" target="_blank">shares</a>:</p>
<blockquote><p><em>“The biggest asset most people are ever going to own is a home. Homeownership is really that financial key that helps unlock stability and wealth preservation across generations.”</em></p></blockquote>
<p>If you’re ready to start building your net worth, the current real estate market offers several opportunities you should consider. For example, with <a href="https://www.simplifyingthemarket.com/2023/12/20/why-mortgage-rates-could-continue-to-decline/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">mortgage rates</a> trending lower lately, your <a href="https://www.simplifyingthemarket.com/2024/01/08/what-lower-mortgage-rates-mean-for-your-purchasing-power/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">purchasing power</a> may be higher now than it has been in months. And, with more <a href="https://www.simplifyingthemarket.com/2023/12/13/the-surprising-trend-in-the-number-of-homes-coming-onto-the-market/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">inventory</a> coming to the market, there are more options for you to consider. A local <a href="https://www.simplifyingthemarket.com/2023/12/07/why-you-need-to-use-a-real-estate-agent-when-you-buy-a-home/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">real estate agent</a> can walk you through the opportunities you have today and guide you through the process of finding your ideal home.</p>
<h3>Bottom Line</h3>
<p>If you’re unsure about whether to rent or buy a home, keep in mind that owning a home can increase your overall wealth in the long run, no matter your income. To discover more about this and the many other <a href="https://www.simplifyingthemarket.com/2023/12/25/these-non-financial-benefits-turn-a-house-into-a-happy-home/" rel="noopener noreferrer" target="_blank">benefits</a> of homeownership, connect with a local real estate agent.</p>
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