Owning a home is a major financial milestone and an achievement to take pride in. One major reason: the equity you build as a homeowner gives your net worth a big boost. And with high inflation right now, the link between owning your home and building your wealth is especially important.
If you’re looking to increase your financial security, here’s why now could be a good time to start on your journey toward homeownership.
Owning a Home Is a Key Ingredient for Financial Success
A report from the National Association of Realtors (NAR) details several homeownership trends, including a significant gap in net worth between homeowners and renters. It finds:
“. . . the net worth of a homeowner was about $300,000 while that of a renter’s was $8,000 in 2021.”
To put that into perspective, the average homeowner’s net worth is roughly 40 times that of a renter’s. This difference shows owning a home is a key step in achieving financial success.
Equity Gains Can Substantially Boost a Homeowner’s Net Worth
The net worth gap between owners and renters exists in large part because homeowners build equity. When you own a home, your equity grows as your home appreciates in value and you make your mortgage payments each month. As a renter, you don’t have that same opportunity. A recent article from CNET explains:
“Homeownership is still considered one of the most reliable ways to build wealth. When you make monthly mortgage payments, you’re building equity in your home . . . When you rent, you aren’t investing in your financial future the same way you are when you’re paying off a mortgage.”
But on top of that, your home equity grows even more as your home appreciates in value over time. That has a major impact on the wealth you build, as a recent article from Bankrate notes:
“Building home equity can help you increase your wealth over time, . . . A home is one of the only assets that have the potential to appreciate in value as you pay it down.”
In other words, when you own your home, you have the advantage of your mortgage payment acting as a contribution to a forced savings account that grows in value as your home does. And when you sell, any equity you’ve built up comes back to you. As a renter, you’ll never see a return on the money you pay out in rent every month.
Rent Prices Are Rising Everywhere, Including Right Here in Northern Michigan
In order to show how things stack up locally, we did a deep dive into the last 8 years of rental history averages in Grand Traverse County, and the numbers might surprise you. See our graph below:
As the graph above clearly shows, the median rent for a 3 bedroom in Grand Traverse County jumped from $2,120 per month in 2021, to $2,237 per month this year, and rent prices in our area have nearly doubled since 2014.
In contrast, a 3 bedroom home in GT County that sold in August 2021 for $346,500 saw a 15.4% gain just a year later, with an August 2022 sold price of $400,000. That’s a gain of $53,500 in just 12 months, and a median sold price that’s doubled with a 202% gain since 2014.
Owning a home is not only an important life milestone, it’s an integral part of building your net worth. If you’re ready to start on your personal journey to homeownership, we’d love to help! Let’s connect today and chat about your homeownership goals.