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

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

Deciding whether to rent or buy a home? One major consideration that could guide your decision is the potential for homeownership to increase your net worth.

Every three years, the Federal Reserve Board releases the Survey of Consumer Finances (SCF), which compares the wealth of homeowners and renters—and the gap is substantial.

On average, a homeowner's net worth is almost 40 times greater than that of a renter. Take a look at the graph below to see the difference.

Why Homeowner Wealth Is So High

In the earlier edition of the Survey of Consumer Finances, the average net worth of homeowners was approximately $255,000, compared to just $6,300 for renters—a substantial disparity. In the latest update, this gap has widened further as homeowner wealth has increased. (see graph below):

As noted in 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 is the gap between your home’s market value and the balance on your mortgage. You build equity by paying down your mortgage and when your home’s value rises.

In recent years, home prices surged due to a shortage of available homes compared to demand. This imbalance drove prices up, resulting in faster equity growth and greater net worth for homeowners.

If you’re still undecided about renting or buying, consider this: while housing inventory has increased this year, supply remains limited in most areas. As a result, experts predict that prices will rise again next year nationwide, though at a more gradual rate.

Though it’s not the dramatic appreciation we saw during the pandemic, this trend still suggests potential equity gains if you purchase now. As Ksenia Potapov, 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.”

However, prices and available inventory differ by region. Rely on a local real estate agent who can provide insights into area-specific trends and explain the financial and lifestyle benefits of homeownership. This valuable information will guide you in making the right decision for your situation. As Bankrate notes:

“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 renting or buying, remember that if the finances align, homeownership can significantly build your wealth over time.

And if buying seems beyond reach, let’s connect to explore programs that could help make it a reality.