I’m not sold on homeownership leading to wealth.
The numbers tell a different story.
Homeownership is a recurring topic as of late! Many young people just feel like this housing market stalemate is not coming to an end.
And to add salt to the wound, you’ll see things like this floating around on the internet.
Many of us know that our parents and grandparents may have a solid portion of their net worth tied into their home values. For some, it can make up the overwhelming majority of their net worth!
People constantly tell us that buying a home is a great “investment” but they usually leave out a lot of additional headwinds people face when owning versus renting. As one of the primary sources of wealth in America, it may seem like homeownership is the driver of wealth.
But I’d argue the opposite. I’d make the case that wealth is a driver of home ownership.
I recently came across this study from Aspen Institute and two pieces of data stuck out to me like a sore thumb.
On average, homeowners have a net worth that is 40x greater than renters.
If home equity is stripped from the net worth, homeowners still have a net worth 20x larger than renters.
So, with that, I’d argue that homeownership is a byproduct of building good habits around money, savings, and investments.
NOT that homeownership drives people to become wealthier. Although, of course it may play a part in the overall picture, I don’t think that wealth is a byproduct of homeownership.
I mean think about it, to make a downpayment and get approved for a mortgage, we have to have a very solid foundation around our personal finances.
A home itself doesn’t give us the wherewithal to save for a down payment, lower our debt to income ratios, and save more money. All of those things should come prior to buying a home.
While owning a home could assist in compounding our wealth as it is an asset, it usually doesn’t mean that it creates the financial foundation required to be a homeowner in the first place.
So, next time someone tells you that homeownership leads to wealth, you might want to ask if they’re putting the cart before the horse!
PS: Here’s a funny little comment someone left me when I posted about this on X.
“The average net worth of country club members is also higher than non-members.”
Was it the country club that led to that? I’d say no!
This is for informational purposes only and is not intended as legal, tax, or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of publication and are subject to change without notice. Past performance is not indicative of future results.