Home Equity's Ascension: How Homeowner Net Worth Takes Flight

If you're in the process of considering whether renting or buying a home is the better choice for you right now, there's a crucial piece of information that can provide you with more confidence in your decision. The Federal Reserve Board issues the Survey of Consumer Finances (SCF) every three years, which delves into the variation in net worth between homeowners and renters. In a nutshell: the disparity between the two groups is substantial.

The average homeowner’s net worth is almost 40X greater than a renter’s. And here’s the data to prove it (see graph below):

The Big Reason Homeowner Net Worth Is So High

In the prior edition of this report, the average homeowner's net worth hovered around $255,000, while that of the average renter stood at approximately $6,300. However, in the latest release for this year, the divide has expanded significantly, fueled by a substantial increase in homeowner net worth. As outlined in 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 biggest reasons homeowner net worth skyrocketed is home equity.

During the past few years, often dubbed the 'unicorn' era for the housing market, home prices soared to unprecedented heights. This surge was propelled by a shortage of homes on the market and a substantial influx of buyers eager to capitalize on historically low mortgage rates. The resultant imbalance between supply and demand consistently drove prices upward. Consequently, most homeowners who possessed property during this period witnessed significant increases in their home equity.

If you're currently grappling with the decision of whether to rent or buy, you might be wondering if you've missed out on the substantial increase in net worth. However, it's crucial to understand the following, as elucidated in a recent article by 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 have shown an upward trend over time. Even with mortgage rates now hovering around 7-8%, property values continue to increase in many regions of the country due to the persistent disparity between housing supply and demand. This is why expert predictions for the next few years anticipate ongoing appreciation, albeit at a more typical rate for the housing market.

Although it's unlikely to match the record-setting surges observed over the past few years, individuals who purchase homes today are poised to see their home equity continue to grow in the years to come. This implies that if you're prepared and financially able to buy a home at this moment, you'll be 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), says:

“. . . 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.”

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