NEW YORK – Oct. 20, 2015 – Homeowners' net worth is significantly higher than renters. A typical homeowner'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 homeowner gap is expected to widen further due to price increases.
Lawrence Yun, chief economist for the National Association of Realtors®, predicts that the median net worth of homeowners will jump to $225,000 to $230,000 in 2016, but it will be around $5,000 for renters.
If that proves correct, the typical homeowner 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 homeowners steadily build wealth," Yun writes in his latest column for Forbes.com.
"The simplest math shouldn't be overlooked. A vast majority of homebuyers take out a 30-year fixed rate mortgage to make a home purchase," Yun says. "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 aspire to be homeowners and the homeownership rate increases significantly through age. The homeownership rate among households under the age of 35 is 35 percent, for example, but by the time people reach their prime-earning years of 45 to 55, nearly three-fourths are homeowners. By retirement, nearly 80 percent are homeowners, Yun notes.
Source: "How Do Home Owners Accumulate Wealth?" Forbes (Oct. 14, 2015)
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