If you’re in the process of deliberating between renting and buying a home, consider a crucial piece of information that might boost your decision-making confidence. Every three years, the Federal Reserve Board publishes the Survey of Consumer Finances (SCF), which investigates disparities in net worth between homeowners and renters. Here’s the revelation: the difference between the two groups is substantial. The typical homeowner’s net worth is nearly 40 times higher than that of a renter, and the data supports this assertion.
The primary factor behind the substantial increase in homeowner net worth can be attributed to the surge in home equity. In the most recent release of the Survey of Consumer Finances (SCF), the report noted that the growth in median net worth from 2019 to 2022 marked the largest three-year increase in the history of modern SCF, more than twice the next-largest increase on record.
These remarkable gains in homeowner net worth can be traced back to the extraordinary housing market conditions of recent years, often referred to as the ‘unicorn’ years for housing. During this period, home prices experienced unprecedented growth due to a shortage of homes for sale and a substantial influx of buyers capitalizing on historically low mortgage rates. This imbalance in supply and demand pushed home prices to new heights, resulting in significant equity growth for most homeowners who owned homes during that period.
If you’re still contemplating whether to rent or buy, you might wonder if you’ve missed out on the opportunity for a substantial net worth boost. However, it’s essential to recognize that there are steps you can take to enhance your net worth in the years ahead. As an article in The Ascent recently pointed out:
“Whether your net worth has 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 shown an upward trend over time. Even with mortgage rates now closer to 7-8%, prices continue to rise in many regions due to the ongoing disparity between supply and demand. Consequently, expert forecasts for the next few years anticipate continued appreciation, albeit at a more typical pace for the housing market compared to the recent record-breaking years.
While it may not replicate the rapid growth seen in the past, those who purchase homes today can expect their equity to grow in the years to come. Therefore, if you are in a position to buy a home today, you are making an investment that will contribute to the long-term growth of your net worth, as Jessica Lautz, Deputy Chief Economist at the National Association of Realtors (NAR), emphasizes:
“…when deciding whether to rent or buy, one must calculate the total cost of homeownership (maintenance, utilities, commuting, etc.) and the overall financial benefit. Based on new Fed data… the median net worth of homeowners was $396,200 compared to renters at $10,400. There is no doubt about the wealth gains that homeownership provides.”
In case you’re still undecided between renting or buying a home, keep in mind that opting for homeownership can significantly enhance your net worth in the long run. To explore this further or discover the numerous other advantages of owning a home, consider reaching out to a local real estate agent for expert guidance.