Homeownership: A Path to Long-Term Wealth
There are multiple reasons why Americans choose to purchase a home instead of renting. Some of the most popular non-financial reasons given include:
The flexibility to make the space your own,
The pride homeownership offers,
The sense of stability, and
Over time, homeownership builds wealth.
With high inflation right now, the link between owning your home and building your wealth is especially important. If you’re looking to increase your financial security, here’s why now could be a good time to start on your journey toward homeownership.
Owning a Home Is a Key Ingredient for Financial Success
A report from the National Association of Realtors (NAR) details several homeownership trends, including a significant gap in net worth between homeowners and renters. It finds
"The net worth of a homeowner was about $300,000 while that of a renter was $8,000 in 2021.”
To put that into perspective, the average homeowner has a net worth about 40 times greater than a renter. This difference shows owning a home is a key step in achieving financial success.
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. A recent article from CNET explains:
“Homeownership is still considered one of the most reliable ways to build wealth. When you make monthly mortgage payments, you’re building equity in your home... When you rent, you aren’t investing in your financial future the same way you are when you’re paying off a mortgage.”
On top of that, your home equity grows even more as your home appreciates in value over time. That has a major impact on the wealth you build, as a recent article from Bankrate notes:
“Building home equity can help you increase your wealth over time... A home is one of the only assets that have the potential to appreciate in value as you pay it down.”
In other words, when you own your home, you have the advantage of your mortgage payment acting as a contribution to a forced savings account that grows in value as your home does. 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.
Homeowners can leverage the wealth they generate in several ways throughout their life. Tapping into accumulated equity has long been used to pay for the cost of education, to start a business, or fund various other expenses. The Joint Center of Housing Studies at Harvard points out:
“By paying down mortgage principal each month and participating in the long-term appreciation of home values, a family can build wealth that can be used for retirement or other needs, including helping the next generation."
Bottom Line
Owning a home is an important part of building your net worth. Talk to me today if you’re ready to begin your journey on the path to becoming a homeowner.
