Your net worth is the value of your assets after subtracting everything that you owe. It's a really good way to measure your wealth. To calculate it, add up the value of everything you own (your house, cars, personal property, investments, and more) and then subtract all your debts (mortgages, car loans, credit card debt, and all other obligations).
When you look at data on net worth, homeowners have a much higher net worth than renters do. That means that, even after taking their mortgage into account, they have much more wealth than people who rent.
But just how much higher is the net worth of homeowners? Here's what you need to know.
The net worth of homeowners vs. renters will shock you
According to the Federal Reserve, homeowners had a median net worth of $396,200 in 2022 and a mean net worth of $1,530,900 (which obviously has been driven up by some very wealthy people).
Renters, on the other hand, have a median net worth of just $10,400 and a mean net worth of $154,900. This is a very small fraction of the wealth that homeowners have. But as big as this gap is, it actually represents an improvement. Between 2019 and 2022, the median and mean net worth of renters grew by 43% and 40% respectively, while homeowners only saw their median and mean net worth grow by 34% and 20%.
Renters may have seen their fortunes improve during this time in part because of pandemic-related stimulus funds. These would have had a greater impact on their overall wealth than on those who had more money to start with.
Why do homeowners have such a higher net worth?
Homeowners, as a group, are undoubtedly much wealthier than renters, and to a shocking degree. And there are a few reasons for that.
The most obvious reason has to do with the fact that you need to have pretty stable personal finances in order to be able to buy a house in the first place. In other words, people who are already doing pretty well -- and who are on track to building wealth -- are more likely to take out a mortgage and buy a home. People who are struggling and who have very few assets are more likely to be renters, since they can't afford a down payment or qualify for a home loan.
So, it is not necessarily that a home makes people wealthier, but instead that wealthier people are more likely to be in a position to buy a home.
The reality, though, is that owning a home usually does make it a whole lot easier to build wealth. That's because:
- Each housing payment helps the homeowner acquire a valuable asset, which they eventually own free and clear. So each payment grows their net worth a bit, which is not the case when someone is paying rent.
- Homes often go up in value. A homeowner could add tens of thousands, or even millions of dollars, to their net worth as the home they are living in increases in value.
This does not mean you must buy a home to grow rich -- although it can help, especially if you aren't that disciplined about saving and investing. You will, of course, need to make sure you're in a good financial position to buy though (with housing costs taking up no more than about 30% of your income) or you could risk foreclosure or being unable to do other things important to getting rich, like investing for your future.
If you decide not to buy a home, though, you'll need to make sure you are using plenty of your money to purchase other assets (such as stocks) that can help your wealth grow over time. You won't have the forced saving and property appreciation a homeowner gets, so if you want to be rich, you'll need to be much more intentional about finding another way to make it happen.
FAQs
According to the Federal Reserve, homeowners had a median net worth of $396,200 in 2022 and a mean net worth of $1,530,900 (which obviously has been driven up by some very wealthy people). Renters, on the other hand, have a median net worth of just $10,400 and a mean net worth of $154,900.
What is the wealth gap between homeowners and renters? ›
Net worth, the measure of households' wealth, is the difference between families' assets and liabilities. An analysis of the 2022 SCF found that homeowners had a median net worth of $396,000, while renters had the median net worth of just $10,400. Thus, homeowners are wealthier than renters.
Is owning house better than renting? ›
If you have a stable job and income and don't mind staying in one place for several years, buying a home could be the right choice. In contrast, if you're not ready to settle down or want the flexibility to move at a moment's notice, renting might be the better option.
What is the percent of homeowners vs renters in the US? ›
What is the current homeownership rate in the U.S.? The national homeownership rate is 66%, which means that 66% of households own their home while 34% rent.
How much should rent be compared to home value? ›
The amount of rent you charge your tenants should be a percentage of your home's market value. Typically, the rents that landlords charge fall between 0.8% and 1.1% of the home's value. For example, for a home valued at $250,000, a landlord could charge between $2,000 and $2,750 each month.
Are home owners richer than renters? ›
Homeowners have a much higher net worth than renters do -- the median for a homeowner in 2022 was $396,200, versus just $10,400 for renters. Owning a home is one reason why that's the case, as a home is a valuable asset. People who are in a better financial position are also more likely to be able to buy a home.
Are more millionaires renting? ›
Tight home inventory, high mortgage rates and rising costs have many affluent individuals ditching the downpayment for a security deposit. The number of households making over $150,000 that rent rose 87% from 2016 to 2021, according to the U.S. Census Bureau.
Is renting really throwing money away? ›
But when you pay rent, “you're not throwing money away,” Sethi tells CNBC Make It. “You're paying for a roof over your head. You're paying for a landlord to maintain your residence and you're paying for the convenience and flexibility of being able to leave at the end of your lease.”
What age is the best to buy a house? ›
Key Takeaways:
- Most first-time homebuyers make a purchase when they are 35. Buying a house at a young age can mean building equity young and getting a home paid off sooner.
- Purchasing a house in your 20s or earlier can also mean you feel trapped, unable to move at a moment's notice.
Cost: Renting an apartment is typically more cost-effective than renting a house, and some utilities may be included in your rent. Apartments are also less expensive than most rental houses due to their smaller size. Space: Apartments generally have less square footage than rental houses.
California was the state with the highest share of renter households in the United States in 2022. About 30 percent of the households lived in rental accommodation in that year.
What percent of Americans pay rent? ›
Rent statistics by state in the U.S.
The state with the highest number of renter-occupied homes is Washington DC (58.9%), followed by New York (45.9%), and California (44.2%).
Are more people buying or renting? ›
Statistics & Studies on the Buy vs.
As of 2022, 84.6 million out of a total 129.9 million households own their homes. 45.2 million households rent their homes. 2.7% of occupied housing units are second homes.
What is the 2% rule in real estate? ›
Definition of the 2% Rule
For example, if a property costs $200,000, it should bring in at least $4,000 per month in rent ($200,000 x 0.02 = $4,000) for the 2% rule to be satisfied. The idea is that properties meeting this threshold are more likely to bring positive cash flow and provide good returns.
What is the 1% rule in real estate? ›
For a potential investment to pass the 1% rule, its monthly rent must equal at least 1% of the purchase price. If you want to buy an investment property, the 1% rule can be a helpful tool for finding the right property to achieve your investment goals.
Is the 1% rule realistic? ›
Is The 1% Rule Realistic? Many people find the 1% rule helpful, but there are some shortcomings with using this strategy. For one thing, properties that fail to meet the 1% rule are not necessarily bad investments. And likewise, properties that do meet the 1% rule are not automatically good investments either.
What is the rental income gap? ›
Roughly half of U.S. renter households are cost burdened, according to a recent apartment list study. In California, the situation is much worse. As the study defines it, cost burdened renters spend more than the recommended 30% of their monthly income on rent.
How much more should your income be than your rent? ›
One popular guideline is the 30% rent rule, which says to spend around 30% of your gross income on rent. So if you earn $4,000 per month before taxes, you could spend up to about $1,200 per month on rent.
What is the rental disparity? ›
It describes the disparity between the current rental income of a property and the potentially achievable rental income.
Does rent count towards net worth? ›
While any asset can boost your net worth, several large assets are likely to have a greater positive effect on your bottom line. These include your primary residence, vacation homes, rental properties, investments, and collectibles.
