There are many financial and non-financial benefits of homeownership, one of the greatest being wealth creation. Simply stating the words “wealth creation,” many Americans will automatically disqualify themselves as candidates. However, as a lender that believes in building a future for yourself and your family, we pride ourselves in helping everyone we can create their path to homeownership. Homeownership has always been the first rung on the ladder that leads to forming household wealth. As Freddie Mac explains: “Homeownership has cemented its role as part of the American Dream, providing families with a place that is their own and an avenue for building wealth over time. This ‘wealth’ is built, in large part, through the creation of equity. Building equity through your monthly principal payments and appreciation is a critical part of homeownership that can help you create financial stability.”

The #1 Benefit is Increasing Family Wealth

To quote our previous article on on homeownership and wealth: Interpreting the data on the wealth gap between homeowners and renters is similar to figuring out whether the chicken or the egg came first. Did wealthy people buy homes, which is why homeowners now have higher levels of wealth than renters? Or, is it the other way around. Did people buy homes and suddenly improve their wealth? This situation is much easier to figure out than the chicken or the egg; almost always, owning a house came before they acquired wealth. More importantly, owning a house helped them build wealth.

However, it’s important to note, in times like these we have had to see through the clouded waters and realize that even throughout foreclosures, unemployment and a pandemic, home values have increased. This resulted in high demands for housing and low housing inventory. That has provided the opportunity for those who owned homes before the pandemic to increase the equity in their homes. Even those who purchased their home at the beginning of the pandemic have seen an increase in their home value, and therefore in their home equity.

Renters Don’t Capture Equity Gains

Despite the risk of volatility in the housing market, numerous studies have demonstrated that homeownership leads to greater family wealth accumulation when compared with renting. Renters don’t capture the wealth generated by house price appreciation, nor do they benefit from the equity gains generated monthly with their monthly rent payments. This home equity can be viewed as a form of forced savings for homeowners. Homeowners even have the option to do cash-out refinancing in order to utilize the equity in their home to invest in everything from a new business to a variety of additional wealth generating opportunities.

There are certainly risks from homeownership, and its benefits are not uniform across all markets. However, for the majority of households that transition into homeownership, the most recent data reinforces that housing is one of the biggest positive drivers of wealth creation.

Odeta Kushi, Deputy Chief Economist at First American, also notes: “The wealth-building power of homeownership shows that home is not only where your heart is, but also where your wealth is…For the majority of households that transition into homeownership, the most recent data reinforces that housing is one of the biggest positive drivers of wealth creation.”

Throughout the Pandemic Every State Showed Increased Equity

Last week, CoreLogic released their latest Homeowner Equity Insights Report, which reveals the surge in wealth created over the last twelve months through increased home equity. The report makes five key points:

1. Roughly 38% of all homes are mortgage-free

2. The average equity gain of mortgaged homes in the last year was $26,300

3. The current average equity of mortgaged homes is greater than $200,000

4. There was a 16.9% increase in total homeowner equity

5. Total homeowner equity reached over $1.5 trillion

Here’s a map that shows the equity gains by state:

Increasing equity is giving homeowners the power to better manage the challenges of the pandemic, especially for those spending more time at home. In the report, Frank Nothaft, Chief Economist for CoreLogic, explains: “This equity growth has enabled many families to finance home remodeling, such as adding an office or study, further contributing to last year’s record level in home improvement spending.”

The financial advantage homeowners have has not gone unnoticed. In the same report, Frank Martell, President and CEO of CoreLogic, states: “This growing bank of personal wealth that homeownership affords was noticed by many but in particular for first-time buyers who want a piece of the cake.”

Increasing wealth benefits more than just homeowners.

Last year, the Rosen Consulting Group released a report outlining the benefits of homeownership. In that report, they explained what an increase in net worth – which they call the “wealth effect” – means to the economy: “In economic literature, the wealth effect is a term used to describe the fact that individuals have a tendency to increase their spending habits when their actual or perceived wealth increases. For homeowners, the latent savings achieved by building equity in their home and the growth in home values over time both contribute to increased net worth. Through the wealth effect, this in turn translates to households having a greater ability and willingness to spend money across a wide range of other types of goods and services that spur business activity and provide a positive multiplier effect that creates jobs and income throughout the economy.”

Bottom Line

Homeownership builds wealth through equity, and this creates a positive impact for homeowners and their communities. Let’s connect if you’re ready to invest in a home of your own. If you have been feeling the woes of having a troubled landlord, paying rent and having a strong desire to find your path to homeownership, reach out today and talk with one of our loan officers to help you explore your loan options. We are a family company and there is nothing that brings us more pride than helping others find ways to build their families wealth. Finding financial solutions for people to attain the American dream of homeownership is what we do. We work with over 700 lenders so we are able to reduce burdens and help our clients find a loan that works for them.