How Much Richer Are Homeowners Compared to Renters?

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.