Renting vs. Buying: The Net Worth Gap You Need To See
Deciding between renting and buying a home is a big choice—and one key factor to consider is how much owning a home can grow your net worth.
The Wealth Gap: Homeowners vs. Renters
Every three years, the Federal Reserve Board publishes the Survey of Consumer Finances (SCF). This report highlights the stark difference in wealth between homeowners and renters. On average, a homeowner’s net worth is nearly 40 times higher than a renter’s.
In the previous SCF report:
Homeowners’ net worth: ~$255,000
Renters’ net worth: ~$6,300
In the latest update, that gap has grown even larger.
Why Does Homeownership Lead to More Wealth?
1. Home Equity
Equity is the difference between your home’s value and what you owe on your mortgage. You build equity in two ways:
Paying down your mortgage
Home price appreciation
Recent years saw a sharp rise in home prices due to a low supply of homes and high demand. This increase in prices significantly boosted equity for homeowners.
2. Consistent Appreciation
While home price appreciation during the pandemic was unusually high, experts predict prices will continue to rise at a more moderate pace moving forward. That means buying now can still lead to equity gains over time.
Renting vs. Buying: Key Considerations
Financial Benefits of Buying
Owning a home can act as a long-term investment. Over time, your monthly payments go toward an asset that grows in value, whereas rent payments don’t build wealth.
Lifestyle Factors
While financial strategies are important, personal circumstances—like job stability, future plans, and flexibility—should also play a role in your decision.
What to Do Next
If you’re on the fence about whether to rent or buy:
Consult a Local Real Estate Agent: They can provide valuable insights into your market, including home prices, inventory, and appreciation forecasts.
Consider the Long-Term Picture: While upfront costs like a down payment can feel daunting, homeownership often pays off in terms of wealth accumulation and stability.
Bottom Line
If you can make the numbers work, owning a home can be a powerful way to grow your wealth over time. Deciding between renting and buying isn’t just about today’s costs—it’s about your future financial strategy and lifestyle. Let’s connect to explore your options and see how homeownership could benefit you.
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