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2016: Homeowner’s Net Worth Will Be 45x Greater Than a Renter

2016: Homeowner’s Net Worth Will Be 45x Greater Than a Renter

Every three years the Federal Reserve conducts a Survey of Consumer Finances in which they collect data across all economic and social groups. The latest survey, which includes data from 2010-2013, reports that a homeowner’s net worth is 36 times greater than that of a renter ($194,500 vs. $5,400).

In a recent Forbes article the National Association of Realtors’ (NAR) Chief Economist Lawrence Yun predicts that in 2016 the net worth gap will widen even further to 45 times greater.

The graph below demonstrates the results of the last two Federal Reserve studies and Yun’s prediction:

Increasing Gap in Family Wealth | Keeping Current Matters

Put Your Housing Cost to Work For You

Simply put, homeownership is a form of ‘forced savings’. Every time you pay your mortgage you are contributing to your net worth. Every time you pay your rent, you are contributing to your landlord’s net worth.

The latest National Housing Pulse Survey from NAR reveals that 80% of consumers believe that purchasing a home is a good financial decision. Yun comments:

“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. The simplest math shouldn’t be overlooked.”

Bottom Line

If you are interested in finding out if you could put your housing cost to work for you through homeownership, meet with a real estate professional in your area who can guide you through the process.


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7 replies
  1. Jim
    Jim says:

    You have completely mis-interpreted the data, and applied your own conclusions of causation to the Federal Reserve’s report.

    The report clearly indicates there is a wide gap between the incomes of renters and owners (medians of $27,800 and $63,400, respectively).

    Given this disparity in income, it is not surprising that there is a gap in net worth. You imply in this article that the increased net worth is thanks to owning a home. I would counter that the increased net worth is because of higher income.

    As the saying goes, correlation does not imply causation.

    Reply
    • Barry Mathis
      Barry Mathis says:

      While some of the disparity can be attributed to the higher income and likely more stable lifestyle of the homeowners , a net worth difference of 36 times is not explained by a income difference of 2.26 times. The spread is simply too great

      Reply
      • Brian
        Brian says:

        Why is it too great? You are assuming that there is a correlation between income and net worth. These are averages and extremely high net worth individuals can skew the average net worth while having a much smaller effect on the average income because there is a very large discrepancy between their net worth (value of current investments) and their actual income (any salary plus investments they sold).

        Reply
  2. Wadhamite
    Wadhamite says:

    Given so, how much insurance coverage should each carry? Is a renter fine with state-minimum auto liability coverage? Does a typical homeowner have 40% of the value of the home in possessions? — most insurance policies seem to think so.

    Reply
  3. Al Cole
    Al Cole says:

    Renters do not benefit in the accumulation of equity and real estate appreciation which gives an advantage to homeowners. Of course potential homeowners have to be able to afford a mortgage before they commit themselves to assuming the responsibilities of home ownership.

    Reply

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