5 Ways Homeownership Impacts Your Net Worth

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Homeownership is much more than just buying something pretty that puts a roof over your head. Purchasing a home is a foundational step for building net worth, generational wealth, and one of the most consistent ways to build a financial bedrock for future generations. Let’s start here…

The Survey of Consumer Finances, released in Sept. 2020 by the Federal Reserve, found the median U.S. household net worth is $121,700. However, the difference between the net worth of homeowners versus renters is shocking. According to CNBC, in 2019, homeowners in the U.S. had a median net worth of $255,000, while renters had a net worth of just $6,300. That’s a 40-times difference between the two groups.

What is Net Worth?

In technical terms, your net worth measures the value of all the assets you own minus the debts that you owe. 

To figure out your net worth add up your assets (the cash you have in bank accounts, investments, retirement accounts, etc. as well as the value of any properties you own) and then subtract any liabilities like mortgage payments, car notes, student loans, credit cards, etc. that you owe.

Your net worth is essentially a big picture way to measure your overall financial health. Think of it like a snapshot that shows you where you are on your financial journey.

So, Where Does Homeownership Come In?

Building net worth happens in a number of ways. Along with many other strategies, some people choose to invest in stocks and bonds, while others work on saving their money and paying down as much of their debt as they can. Historically, one of the most efficient and effective ways to build wealth over time is with the purchase of a home. Buying a home with a 30-year, fixed-rate mortgage can help you build that wealth by:

  • Providing you with a stable investment that also doubles as a place to live
  • Acting as an automatic savings account since essentially each payment increases the equity in your investment
  • Giving you a stable housing payment so you never have to worry about rising rent costs again
  • Allowing significant tax deductions and credits
  • Providing you with a valuable asset that you can pass down for generations

What About the Future?

For homeowners, a monthly mortgage payment can act as a forced savings. As you pay down your principal, you build equity, which helps to increase your net worth. One of the most significant benefits of home ownership is what it can mean for the years to come.

With a stable, fixed payment, homeowners can anticipate their costs of living from year to year, and have more flexibility to make their financial decisions, including diverse savings, retirement accounts and even being able to save for their children and grandchildren. 

Homeowners Continue To See Equity Increase

CoreLogic recently published their latest Homeowner Equity Insights Report, and it shows continued growth in equity among record home price appreciation. The report provides several key points, all of which point to rising wealth for homeowners:

  1. The average equity gain of mortgaged homes during the past year was $33,400
  2. The current average equity of mortgaged homes is greater than $216,000
  3. There was a 6% increase in total homeowner equity over the past year
  4. Total U.S. homeowner equity has reached nearly $1.9 trillion

Many homeowners who pay off their home in their “early years” enjoy living mortgage free, which makes retirement more comfortable. Others choose to sell their home and move up to something larger or even rent out their property for extra income and then choose to travel. Regardless of the choice, a home is certainly worth the investment early on. 

In fact, according to CareLogic, in the second quarter of 2021, the average homeowner gained approximately $51,500 in equity during the past year. 

Howie, Owner of BP Realty, has said it himself many times, “83% of the average homeowner’s wealth at retirement comes from home equity. We care about this and we care about you”. So, if you’re looking for a competent team that has one goal (YOU) in mind, let’s chat. Our team is here for you 24 hours a day. 

If you’re ready to start building your net worth, the current real estate market offers several opportunities you should consider. For example, with today’s low mortgage rates, your purchasing power may be higher now than it has been in some time. That means there may be no better time than now to start working towards your homeownership goals – especially since rates are anticipated to rise in the coming months.

Owning a home provides one of the strongest foundations for building individual wealth and lasting financial security. If you’re ready to start your path towards homeownership, let’s connect today.

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