When it comes to choosing between renting or buying a home, one major factor could tip the scales: the potential to build wealth. Homeownership can have a huge impact on your net worth — and the numbers are hard to ignore.
Every three years, the Federal Reserve’s Survey of Consumer Finances (SCF) sheds light on the wealth disparity between homeowners and renters. And the gap is staggering.
According to the latest SCF report, homeowners’ net worth is nearly 40 times higher than that of renters. The difference is immense — and the trend has only grown in recent years.
For instance, in the last survey, the average homeowner had a net worth of approximately $255,000, while renters had just $6,300. That’s a sizable gap. And in the most recent update, this disparity widened even further as homeowner wealth continued to climb.
Here’s a visual breakdown of the numbers:
This dramatic increase in homeowner wealth, especially between 2019 and 2022, marked the largest three-year growth in modern SCF history — more than double the next biggest gain. But why did this happen?
The primary reason behind the surge in homeowner wealth is home equity. Equity is essentially the difference between the market value of your home and the remaining balance on your mortgage. You build equity by making mortgage payments and through rising property values.
In recent years, home prices have soared due to an ongoing shortage of available properties. This imbalance of supply and demand has led to increased property values, which in turn has accelerated homeowners’ equity gains.
If you’re still deciding whether to rent or buy, keep this in mind: While the housing market inventory has increased slightly this year, it remains insufficient in many areas. As a result, home prices are expected to rise again next year, albeit at a slower pace than during the pandemic-driven boom.
Though the rapid price appreciation may have slowed, buying a home now could still offer solid equity-building opportunities.
Ksenia Potapov, an economist at First American, explains it well:
"Despite market volatility, homeownership remains one of the most effective ways to accumulate wealth and is the largest asset for most households."
It’s important to note that housing prices and inventory vary greatly by region. This is where a knowledgeable local real estate agent comes in handy. They can provide insights into your specific market and offer guidance on the financial and personal advantages of owning a home.
As Bankrate highlights:
"The choice between renting and buying isn’t just about immediate costs. It involves long-term financial planning and personal goals. If you’re unsure, working with a local real estate agent can help you make an informed decision."
If you’re on the fence about renting vs. buying, keep in mind that purchasing a home can be a powerful tool for growing your wealth over time — provided it fits within your financial plans.
To help you decide whether the time is right to buy a home or continue renting, we created a worksheet that provides a side-by-side comparison of the pros and cons of renting versus buying a home.
To get instant access to Rent or Buy worksheet, click here: