If you’re trying to decide whether to rent or buy a home this year, here’s a powerful insight that could give you the clarity and confidence you need to make your decision.
Every three years, the Federal Reserve releases the Survey of Consumer Finances. It compares net worth for homeowners and renters. The latest report shows the average homeowner’s net worth is almost 40X greater than a renter’s.
One reason a wealth gap exists between renters and homeowners is because when you’re a homeowner, your equity grows as your home appreciates in value and you make your mortgage payment each month. When you own a home, your monthly mortgage payment acts like a form of forced savings. Eventually it pays off when you decide to sell. As a renter, you will never see a financial return on the money you pay out in rent every month.
The Largest Part of Most Homeowner Net Worth is Their Equity
Home equity does more to build the average household’s wealth than anything else. According to data from First American and the Federal Reserve, this holds true across different income levels.
The blue segment in each bar represents how much of a homeowner’s net worth comes from their home equity. Based on this data, it’s clear no matter what your income level is, owning a home can really boost your wealth.
If you’re ready to start building your net worth, the current real estate market offers several opportunities you should consider. For example, with mortgage rates trending lower lately, your purchasing power may be higher now than it has been in months. And, with more inventory coming to the market, there are more options for you to consider.
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