Renting vs. Buying: The Net Worth Gap You Need To See

Debating whether to rent or buy a home? A major factor to consider is how homeownership can help grow your net worth over time.

Every three years, the Federal Reserve releases the Survey of Consumer Finances (SCF), which compares the wealth of homeowners and renters—and the gap is striking.

On average, homeowners have a net worth nearly 40 times greater than renters. Take a look at the graph below to see the difference: 

Why Homeowner Wealth Is So High

In the previous version of that report, the average homeowner’s net worth was around $255,000, compared to just $6,300 for renters—still a significant gap. However, in the latest update, the difference has grown even wider, with homeowner wealth continuing to rise (see graph below):

As the SCF report says:

“. . . 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.”

One major factor driving the increase in homeowner wealth is the growth in home equity.

Equity is the difference between your home’s market value and the remaining balance on your mortgage. You build equity by making mortgage payments and when your home’s value appreciates.

In recent years, home prices have risen significantly, largely due to a shortage of available homes to meet demand. This supply-demand imbalance drove prices higher, resulting in faster equity growth and a larger increase in net worth for homeowners.

If you’re still undecided between renting and buying, here’s something important to consider: While housing inventory has increased this year, most markets still face a shortage. As a result, experts predict home prices will rise again next year, though at a more moderate pace.

While it may not be the same rapid appreciation we saw during the pandemic, it still represents potential equity gains if you buy now. As Ksenia Potapov, 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.”

Keep in mind that prices and inventory can vary significantly by location, so it’s important to rely on a local real estate agent. They can provide insights into local trends and highlight the financial and lifestyle benefits of homeownership specific to your area. This key information will help you make the best decision for your situation right now. As Bankrate explains:

“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.”

Bottom Line

If you’re unsure whether to rent or buy, remember that if the numbers add up, homeownership can be a powerful way to build wealth over time. And if owning a home feels out of reach, let’s connect to explore programs that might make buying a reality for you.