If you’re weighing your options to decide whether it makes more sense to rent or buy a home today, here’s one key data point that could help you feel more confident in making your decision. Every three years, the Federal Reserve Board releases the Survey of Consumer Finances. That report covers the difference in net worth for both homeowners and renters.
The average homeowner’s net worth is almost 40X greater than a renter’s.
Here’s the data to prove it (see graph below).
The Big Reason Homeowner Net Worth Is So High
In the previous version of that report, the net worth of the average homeowner was roughly $255,000 and that of the average renter was $6,300. But, in the release that just came out this year, the gap widened as homeowner net worth climbed dramatically.
One of the biggesst reasons homeowner net worth skyrocketed is home equity.
Over the last few years, known as the ‘unicorn’ years for housing, home prices went through the roof. That’s because there weren’t enough homes for sale. There also was a big influx of buyers rushing to buy them and take advantage of the then record-low mortgage rates. That imbalance of supply and demand pushed prices higher and higher. As a result, most homeowners who had a home during that time saw their equity grow a lot.
If you are still in the middle of making your decision on whether to rent or buy, you may wonder if you missed the boat on the big net worth boost.
Historically, home prices climb over time. Even now that mortgage rates are closer to 7.8%, prices are still rising in many areas of the country because supply is still low compared to demand. That’s why expert forecasts for the next few years call for ongoing appreciation.
While it likely won’t be the record ramp-up that happened over the last few years, people who buy now should continue to grow equity in the years ahead. That means, if you are ready and able to buy a home today, you will be making an investment that will help build your net worth in the long run.
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