Saturday
August 19, 2017

Home Owners Trump Renters in Wealth

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Home Owners Trump Renters in Wealth

Home owners’ net worth is significantly higher than renters. A typical home owner’s net worth is $195,400 compared to a renter’s $5,400, according to the Federal Reserve’s last data from 2013.

The Fed’s next survey of household finances, which is conducted every three years, is due out in 2016 and the renter to home owner gap is expected to widen further due to price increases.

Read more: Top 3 Reasons Why Americans Want to Own

Lawrence Yun, chief economist for the National Association of REALTORS®, predicts the figure to jump to $225,000 to $230,000 in median net worth for home owners in 2016 and around $5,000 for renters.

If that proves correct, the typical home owner will be ahead of a typical renter by a multiple of 45 on a lifetime financial achievement scale.

“Though there will always be discussion about whether to buy or rent, or whether the stock market offers a bigger return than real estate, the reality is that home owners steadily build wealth,” Yun writes in his latest column for Forbes.com. “The simplest math shouldn’t be overlooked. A vast majority of home buyers take out a 30-year fixed rate mortgage to make a home purchase. After 30 years, there is no mortgage payment (nor rent payment). So the home price growth over that time period would be the equity that the home buyer would have accumulated.”

The majority of Americans do aspire to be home owners and the home ownership rate increases significantly through age. For example, the home ownership rate among households under the age of 35 is 35 percent, but by the time people reach their prime-earning years of 45 to 55, nearly three-fourths are home owners. By retirement, nearly 80 percent are home owners, Yun notes.

Source: “How Do Home Owners Accumulate Wealth?” Forbes (Oct. 14, 2015)