Homeownership: The Gift That Keeps on Giving

Did you know Americans lost a lifetime income of $70,000 as a result of the Great Recession? That is according to a recent report from the Federal Reserve Bank of San Francisco, which analyzed the long-term effects of the last financial crisis. That’s 16% more than the annual median household income, which was $59,039 in 2016. While news like this may come as a shock, it begs the question: What steps can you take to protect your financial well-being going forward? Aside from investing in the stock market, the numbers point to one tried and true way that Americans are building their wealth and securing their financial futures: homeownership.

Between 2013 and 2016, the median net worth of homeowners increased 15%. In contrast, the median net worth of renters fell 5% during that same period. As of 2016, homeowners had a median net worth of $231,400, compared to just $5,200 for renters. That means homeowners have nearly 45 times the net worth than that of renters.

And more recent data indicates the wealth-building power of homeownership is getting stronger. In the first quarter of 2018, household net worth rose to a record high of $100.8 trillion, according to additional data from the Federal Reserve. Household net worth is defined as the total value of assets (such as stocks and real estate) minus liabilities (such as mortgage and credit card debt). This boost in household wealth was primarily due to the rising home prices that have swept across the country in recent years.

The above chart reflects the combination of financial assets such as stocks and nonfinancial assets such as real estate. Removing the financial asset component, real estate still makes up a significant portion ($25.1 trillion) of household net worth.

The moral of the story? You can’t predict when hard economic times will hit, but you can take smart steps today to keep your money working for you tomorrow. And what current trends — and history itself — are telling us is that owning a home is one of the most powerful ways to build your wealth and secure your financial future.

We are not a financial advisory firm. Consult your financial advisor before making any investment decisions.