Renting vs. Buying: The Wealth-Building Advantage of Homeownership
If you’re deciding whether to rent or buy a home, consider how homeownership could significantly boost your net worth. According to the Federal Reserve’s Survey of Consumer Finances (SCF), the average homeowner’s net worth is nearly 40 times higher than a renter’s. This article explores the wealth-building benefits of owning a home and why buying could be the better financial decision.
The Net Worth Gap Between Homeowners and Renters
Every three years, the Federal Reserve’s SCF report highlights the wealth disparity between homeowners and renters. The latest survey found that the average homeowner’s net worth was around $255,000, while renters had an average net worth of just $6,300. The gap continues to widen, driven by rising home values and equity gains.
Why Homeownership Leads to Higher Net Worth
One primary reason for this net worth gap is home equity. Home equity is the difference between your home’s current market value and the balance left on your mortgage. Homeowners build equity in two ways: by making mortgage payments and by benefiting from home price appreciation.
In recent years, home prices have surged due to high demand and limited housing supply. This increase has allowed homeowners to accumulate substantial equity, which contributes directly to their overall wealth. The SCF report highlights that from 2019 to 2022, homeowner wealth saw the largest three-year increase in the report's history, underscoring the financial advantage of owning a home.
Considering Home Price Trends for Future Equity Gains
If you’re weighing the pros and cons of renting versus buying, it’s essential to consider current and projected home price trends. While the housing market has cooled somewhat, experts predict moderate price increases in the coming year. Though these gains may not match the rapid appreciation seen during the pandemic, they still offer potential for equity growth over time.
As Ksenia Potapov, an economist at First American, notes:
"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."
The Role of a Real Estate Agent in Your Decision
Home prices and inventory vary by region, so connecting with a knowledgeable local real estate agent can provide valuable insights into your area’s market trends. A professional agent can explain not only the financial aspects but also the lifestyle benefits of homeownership, helping you make an informed decision.
As Bankrate advises:
“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.”
Bottom Line
If you’re debating whether to rent or buy, keep in mind that buying a home could significantly increase your net worth over time. Homeownership provides the opportunity to build equity, take advantage of home price appreciation, and create a solid foundation for long-term wealth.
If you’re ready to explore the potential of homeownership but feel it might be out of reach, let’s connect. Together, we can review programs and options that could make buying a home possible for you.
