If you are in the process of weighing the pros and cons of renting versus buying a home in today's real estate market, there is one crucial piece of data that might tip the scales in favor of homeownership. Every three years, the Federal Reserve Board releases the Survey of Consumer Finances (SCF), which examines the disparities in net worth between homeowners and renters. Here is the spoiler: the contrast between the two is staggering.
The average homeowner's net worth is nearly 40 times greater than that of a renter.
The Main Driver Behind the Surge in Homeowner Net Worth
In the previous iteration of this report, the typical homeowner's net worth stood at approximately $255,000, while that of the average renter was only $6,300. However, in the most recent release, the gap has widened significantly due to a remarkable increase in homeowner net worth. 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 primary factors responsible for the surge in homeowner net worth is home equity. In the past few years, often referred to as the 'unicorn' years for the housing market, home prices experienced a meteoric rise. This was the result of a shortage of available homes for sale, coupled with a surge in homebuyers taking advantage of historically low mortgage rates. The imbalance between supply and demand pushed home prices to new heights, causing most homeowners to witness substantial growth in their home equity. If you are currently grappling with the decision of whether to rent or buy, you may be wondering if you missed the boat on this significant boost in net worth.
However, it is essential to understand that, as noted in a recent article in The Ascent: "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 now, with mortgage rates hovering around 7-8%, prices are still on the rise in many parts of the country due to the ongoing disparity between supply and demand. Expert forecasts for the next few years also predict continued appreciation, albeit at a pace more in line with the typical housing market. While it may not match the extraordinary surge of the past few years, individuals who make the decision to buy a home today are likely to see their equity grow in the years to come. This means that if you're prepared and able to purchase a home now, you're making an investment that will significantly enhance your net worth over time.
In the words of Jessica Lautz, Deputy Chief Economist at the National Association of Realtors (NAR): "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."
In Conclusion
If you are teetering on the fence between renting and buying a home, remember that homeownership has the potential to substantially boost your net worth over time. To learn more about this and the myriad other advantages of owning a home, don't hesitate to reach out to Scott and the Smolen Team today!
