For anyone contemplating the age-old question of whether to rent or buy a home, a key data point from the Federal Reserve Board’s recent Survey of Consumer Finances (SCF) could tip the scales decisively in favor of homeownership. This comprehensive report highlights a staggering disparity in net worth between homeowners and renters, demonstrating that the average homeowner’s net worth is nearly 40 times greater than that of a renter. In this article, we’ll delve into the reasons behind this significant gap and explore why now may still be an opportune moment to embark on the path to homeownership.
The Remarkable Surge in Homeowner Net Worth: In the previous iteration of the SCF report, the net worth of the average homeowner was estimated at approximately $255,000, while that of the average renter was a mere $6,300. However, the latest release of the report reveals a substantial widening of this gap, with homeowner net worth experiencing a remarkable surge. The report states:
“…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.”
What’s the driving force behind this dramatic increase in homeowner net worth? The answer lies in home equity.
The Home Equity Phenomenon: In recent years, often referred to as the ‘unicorn’ years for the housing market, home prices skyrocketed due to a scarcity of available homes and a surge in homebuyer demand, spurred by historically low mortgage rates. This supply-demand imbalance sent home prices soaring, significantly bolstering the equity of homeowners. Many individuals who owned homes during this period witnessed substantial growth in their net worth.
If you’re still debating whether to rent or buy, you might be wondering if you missed out on the opportunity for a substantial net worth boost. The reality is that there are ways to enhance your net worth, even now. As an 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 have demonstrated an upward trajectory, and even with mortgage rates approaching 7-8%, prices continue to rise in many regions due to limited supply. Expert forecasts for the next few years anticipate ongoing appreciation, albeit at a more typical housing market pace.
While it may not replicate the record-breaking increases of the past few years, those who decide to purchase a home now are likely to see their equity continue to grow in the years ahead. This means that buying a home today can be a savvy long-term investment.
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.”
If you find yourself standing at a crossroads, uncertain about renting or buying a home, remember that homeownership has the potential to significantly boost your net worth over time. The advantages of owning a home extend beyond financial gains, encompassing numerous other benefits as well. If you’re eager to explore the possibilities and learn more about the advantages of owning a home, we’re here to assist you. Connect with us to start your journey towards a brighter financial future.