For anyone contemplating buying a home, the process might seem overwhelming. However, recent data suggests it could be worth the effort—especially for renters, who have faced significant financial losses compared to homeowners over the past five years.
According to a report from First American, homeowners who purchased real estate in 2019 have gained approximately $158,000 in wealth. Conversely, renters over the same period lost about $89,000 cumulatively. These numbers raise a compelling question: Is your home acting as a financial piggy bank?
Home as a wealth generator
Owning a home isn’t just about having a place to live—it’s also an investment. Monthly mortgage payments gradually build equity, a financial asset that grows over time. This is coupled with tax benefits such as deductible mortgage interest and property taxes.
Looking back to 2014, homeowners who purchased property have seen an even greater benefit, with gains nearing $225,000. In contrast, renters have lost $148,000, a figure that could cover half the median home price in cities like Rockford, Illinois—one of the hottest housing markets today.
Even those who bought during the 2006 housing boom—when prices were at record highs—have still gained $169,000 in wealth, while renters lost $229,000 over the same period.
Renting: flexibility at a cost
Despite these numbers, homeownership isn’t the right choice for everyone. Renting offers flexibility to move for work or lifestyle changes without the hassle of selling a property. It also avoids the upfront costs of homeownership, such as hefty down payments and closing fees. Renters typically aren't burdened with repair or maintenance expenses either, which can save both time and money.
The Pros and Cons of homeownership
Pros:
- Stable Costs: Unlike rent, which landlords can increase, a fixed-rate mortgage offers predictable payments.
- Tangible Asset: Homeownership provides a physical asset that can appreciate over time, offer tax benefits, and be passed down to family.
Cons:
- Upkeep Costs: Homeownership comes with responsibilities like maintenance, repairs, and property taxes, which can be unpredictable and costly.
- Illiquidity: Home equity isn’t readily accessible unless you sell the property, making it less flexible than other investments.
The wealth gap between renters and owners
For renters, the financial burden of escalating rents and rising costs makes it harder to build wealth. While homeowners benefit from appreciating property values, renters often find themselves moving backward financially.
For example, in Miami, Florida, buying a median-priced home might result in monthly payments around $2,992, excluding taxes. In comparison, renting in the same area averages $2,910 —seemingly cheaper but without the wealth-building benefits of homeownership.
A tough road ahead
Whether the tide will turn for renters remains uncertain. High mortgage rates and policies favoring the wealthy suggest the challenges won’t disappear anytime soon. While homeownership has proven to be a powerful wealth-building tool, not everyone can access its benefits.
As the debate continues, one thing is clear: The gap between renters and homeowners highlights a growing divide in the pursuit of the American Dream.
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