Homeownership is one of the best ways to increase your net worth.
What do you hope your life will be like in a few years? You might aspire to have a more stable job, financial security, and to achieve various goals. Is homeownership a part of that vision for you? If so, you should know that homeownership can offer many financial benefits beyond what you might think.
One of the primary reasons people buy homes is because it's a great way to build wealth and achieve financial stability. Since the value of most homes tends to increase over time, your net worth also increases. Let's take a look at how home values are currently on the rise. According to Zillow:
"The total value of the U.S. housing market is now just under $5.2 trillion, more than $1.1 trillion higher than its previous peak in June. The value of your home is still on the rise."
As you might already know, homeownership is a powerful tool for accumulating substantial wealth. Given that home values are rising nationwide, you should seriously consider homeownership for your future.
Let's examine how homeownership can make a significant difference in your life.
The graph below shows how household net worth has increased for each income percentile from the fourth quarter of 2019. While the top 1% have substantially increased their net worth, others have also steadily seen the value of their net assets rise.
For many people, the appreciation of their home's value has played a significant role in the increase in their net worth.
Lawrence Yun, an economist with the National Association of Realtors (NAR), puts it this way:
"Homeownership is an opportunity to build wealth in all of life's areas. The monthly mortgage payment is often considered a forced savings account that allows homeowners to accumulate approximately 40 times the net worth of renters."
Why is that? Homeowners build equity. Home equity represents the value of your home minus the remaining mortgage balance. For most homeowners, this is their largest contribution to net worth. Data from First American supports this (see the graph below).
The blue portion of each bar represents home equity as part of net worth, and it clearly demonstrates that homeownership contributes more than other investments such as stocks, gold, or cryptocurrencies. As you can see, homeownership plays the most significant role in building wealth for average households across various income levels.
So, take a long-term view. In the current market situation, it's even more challenging for home prices to decline. If you have any questions about today's article, please feel free to contact us at any time.