Renting vs. Buying: The Net Worth Gap You Need To See

Renting vs. Buying: The Net Worth Gap You Need To See

Deciding between renting and buying? One major consideration is how homeownership can significantly build your net worth.

The Federal Reserve Board’s Survey of Consumer Finances (SCF), which is released every three years, offers insight into the wealth disparity between homeowners and renters – and the difference is striking.

On average, a homeowner’s net worth is almost 40 times that of a renter. The graph below illustrates this wealth gap clearly:

Why Homeowner Wealth Is So High

In the last edition of this report, the average net worth of a homeowner was approximately $255,000, compared to just $6,300 for renters—a considerable difference. In the latest update, this gap widened even further as homeowners’ wealth continued to increase (see graph below):

According to the 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 big reason why homeowner wealth shot up is home equity.

Equity represents the difference between your home’s market value and the remaining balance on your mortgage. You build equity by making mortgage payments and when the value of your home rises.

In recent years, home prices have surged due to a shortage of available homes relative to demand. This imbalance led to increased home values, which in turn contributed to faster equity growth and a boost in homeowners' net worth.

If you're undecided about renting versus buying, consider this: although housing inventory has improved somewhat this year, supply remains limited in many areas. That’s why experts predict home prices will continue to rise nationally next year, albeit at a more moderate rate.

Although we're not seeing the rapid appreciation from the pandemic years, buying now still offers potential for equity growth. As Ksenia Potapov, an economist at First American, points out:

“Despite the risk of volatility in the housing market, homeownership remains an important driver of wealth accumulation and the largest source of total wealth among most households.”

Prices and inventory levels can differ widely by region, which is why it's helpful to rely on a local real estate agent. They can provide insights into local trends and guide you on the financial and lifestyle advantages of homeownership. This essential information will support you in making the right decision for your current needs. As Bankrate explains:

“Deciding between renting and buying a home isn’t just about cost — the decision also involves long-term financial strategies and personal circumstances. If you’re on the fence about which is right for you, it may be helpful to speak with a local real estate agent who knows your market well. An experienced agent can help you weigh your options and make a more informed decision.”

Bottom Line

If you’re uncertain about whether to rent or buy, remember that homeownership can significantly build your wealth over time—if it fits within your budget.

And if owning a home seems out of reach, let’s connect to discuss programs that could help make it possible for you.