The 21st of January is National Own Your Own Home Day— a celebration near and dear to our hearts at Danberry! Becoming a homeowner is a significant achievement that comes with many benefits, such as equity, freedom, and stability.
As Habitat for Humanity explains: “Homeownership promotes wealth building by acting as a forced savings mechanism and through home value appreciation. Homeowners make monthly payments that increase their equity in their homes by paying down the principal balance of their mortgage. . . . In addition, owning a home promotes intergenerational homeownership and wealth building. Children of homeowners transition to homeownership earlier — lengthening the period over which they can accumulate wealth.”
The data undoubtedly proves this to be true. Every three years, the Federal Reserve releases the Survey of Consumer Finances (SCF) which includes a comparison on the net worth of homeowners and renters. The latest data shows that the median net housing value (defined as the home’s value minus debts secured by the home, such as mortgages and HELOCs) jumped 44% between 2019 and 2022— the largest growth rates in the history of the modern SCF. This puts the average homeowner’s net worth at $396,200 while the average renter’s net worth is $10,400.
Source: The Federal Reserve System, Changes in U.S. Family Finances from 2019 to 2022
As home values rise, so does homeowner equity. The vast majority also have the benefit of fixed-rate mortgages that keep their principal and interest payments consistent. In comparison, renters typically see increased housing costs as values go up, further diminishing their ability to save.
Some areas are beginning to see a plateau in monthly rental costs, but this comes after years of extreme highs. Between 2012 to 2022, the average annual rent increase outpaced the average annual wage inflation by 270%. Going all the way back to 1980, rent prices have increased 8.86% per year on average. During that same time, the federal minimum wage (adjusted for inflation) actually decreased by $4.00. When you consider the stagnation in wages compared to skyrocketing rental costs, it’s clear to see how the disparities in homeowner wealth versus renter’s wealth was established.
Of course, some people prefer to rent and there’s nothing wrong with that! Everyone should be able to choose the housing situation that suits them best. However, a large percentage of renters have given up on the idea of buying, even if they’d like to be a homeowner, because of affordability concerns. Anyone that desires homeownership is strongly encouraged to find a Realtor and loan officer to discuss their options. Mortgages are not a one-size-fits-all— there are many loan programs and grants that could make buying more attainable than you realize. If you start taking those steps today, you may just be celebrating the next Own Your Own Home Day in your very own property!