Trying to figure out whether to rent or buy a home? One important aspect to consider is how buying a home can potentially increase your net worth over time.

Every three years, the Federal Reserve Board releases a report known as the Survey of Consumer Finances (SCF). This report highlights the wealth differences between homeowners and renters, and the gap is quite notable.

On average, homeowners have a net worth that's almost 40 times greater than that of renters. Take a look at the graph below to see the difference for yourself.

Why Homeowner Wealth Is So High

In the earlier version of that report, the typical net worth for homeowners was around $255,000, while renters had an average net worth of only $6,300. That's a significant difference. However, in the latest update, this gap has widened even further as homeowner wealth has increased even more.

The SCF report states that:

““. . . 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.”
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— SCF

A major reason homeowner wealth increased is due to rising home equity.

Equity is essentially the gap between how much your home is worth and how much you still owe on your mortgage. You build equity by making mortgage payments and when the value of your home increases.

Home prices have really risen over the past few years, mainly due to a shortage of available homes to meet the demand. This imbalance between supply and demand has led to higher prices, resulting in quicker equity gains and increased net worth for many homeowners.

If you're trying to decide between renting and buying, here's the important information. Although the number of available homes has increased this year, many areas still face a shortage. This is why experts predict that home prices will continue to rise nationally next year, although the rate of increase should be more moderate.

While it may not be the dramatic price increases we experienced during the pandemic, buying now could still lead to some significant equity gains for you. Ksenia Potapov, an economist at First American, explains:

““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.”
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— Ksenia Potapov, Economist at First American

Prices and inventory can differ quite a bit depending on the area. That's why it's a good idea to consult a local real estate agent. They can provide insights into local trends and discuss the financial and lifestyle advantages of homeownership. This essential information can assist you in making the best decision for your current situation. As Bankrate points out:

““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.”
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— Bankrate

Bottom Line

If you're uncertain about whether to rent or buy, remember that if the numbers add up in your favor, owning a home can significantly increase your wealth over time.

If owning a home seems daunting, let's chat about some programs that could help make it a reality for you.