The link between financial security and homeownership is especially important today as
inflation rises. But many people may not realize just how much owning a home contributes to your overall
net worth. As Leslie Rouda Smith, President of the
National Association of Realtors (NAR),
says:
“Homeownership is rewarding in so many ways and can serve as a vital component in achieving financial stability.”
Here are just a few reasons why, if you’re looking to increase your financial stability, homeownership is a worthwhile goal.
Owning a Home Is a Building Block for Financial Success
A recent NAR
report details several homeownership trends and statistics, including the difference in net worth between homeowners and
renters. It finds:
“. . . the net worth of a homeowner was about $300,000 while that of a renter’s was $8,000 in 2021.”
To put that into perspective, the average homeowner’s net worth is roughly 40 times that of a renter (see visual below):
The results from this report show that owning a home is a key piece to the puzzle when building your overall net worth.
Equity Gains Can Substantially Boost a Homeowner’s Net Worth
The net worth gap between owners and renters exists in large part because homeowners build
equity. As a homeowner, your equity grows as your home
appreciates in value and you make your mortgage payments each month.
In other words, when you own your home, you have the benefit of your mortgage payment acting as a contribution to a forced savings account. And when you sell, any equity you’ve built up comes back to you.
As a renter, you’ll never see a return on the money you pay out in rent every month.
To sum it up, NAR says it
simply:
“Homeownership has always been an important way to build wealth.”
Bottom Line
The gap between a homeowner’s net worth and a renter’s shows how truly foundational homeownership is to wealth-building.
