The relationship between homeownership and net worth

During the span between 2019 and 2022, the COVID-19 pandemic significantly disrupted both society and economic activities. Nevertheless, the latest Survey of Consumer Finance, which has recently been unveiled, highlights widespread enhancements in the financial well-being of American families during this timeframe, especially concerning their net worth.

The median net worth of homeowners increased 37%, after adjustment for inflation, between 2019 and 2022.  This is the largest three-year increase in the history of the modern Federal Reserve Board's triennial survey dating back to 1989 and more than twice the next largest one on record.

The survey showed that median and mean net worth increases were near-universal across different types of families, grouped by economic or demographic characteristics.

For families who owned a home, the median net housing value, the value of the home, and less secured debt increased 44% between the same three-year period.  The median homeowner has a net worth of $396,000 compared to approximately $10,400 for renters, making the net worth of a homeowner 38 times the household wealth of a renter, according to the latest data.

Housing wealth, in this study, represented, on average, approximately 75% of the total assets of the lowest-income household.  In the middle-income distribution, housing wealth represents between 48% and 74% of total assets.  For the top 10% of the income distribution, the wealthiest households' share was 33%.  The study suggested that as income and net worth increases, the diversification of investments increases.

Even though there was a significant increase in the value of homeowners' property during this period, the debt secured by the residential property was relatively unchanged, and the median amount of this debt decreased by less than one percent to $155,600 in 2022.  During the same period, credit card debt was stable.

Odeta Kushi, deputy chief economist at First American, summarized by saying, "For the majority of households that transition into homeownership, the most recent data reinforces that housing is one of the biggest positive drivers of wealth creation in this country."

Starting in 2022, mortgage rates more than doubled during the fall of 2021 and continued to rise throughout 2022, and most of 2023, they reached the high 7% range, which the market had not reached for 30 years.  This rate affected buyers' affordability and challenged a belief that rates would stay low since they had been for over ten years after the Great Financial Crisis.

While homeownership is still a major part of the "American Dream", would-be buyers are having to adapt to the higher rates.  Even if rates moderate during 2024, the low housing inventory experienced across the country will continue to increase prices, which will favor current homeowners.  It could take years to reach a balanced market.

The challenged buyers should remember that homes have appreciated 5.56% annually for the last sixty years.  The average mortgage rate in the same period is 7.74%. 

Based on the impressive margin that homeowners have 38 times more net worth than renters and that the contributing factor is the home's equity, Buyers who can financially afford to buy now should investigate exactly what it will take to get into a home now.

Download our Buyers Guide.