Overall stability, better health, improved educational performance, the freedom to have pets and make improvements… all of these are reasons why many people can benefit from affordable homeownership. At the root of many of these positive outcomes is the transformative power that owning a home can have on a household’s finances. This impact is often seen, not only throughout the lifetimes of the initial homeowners, but throughout future generations of homeowners who continue to reap the benefits from affordable housing and experience improved prosperity.
The fact that most homeowners find themselves in a more comfortable financial position than renters is shown in stark contrast through the numbers. According to the 2013-2016 Survey of Consumer Finances, the average renter has a household wealth of about $5,200. The average household wealth of a homeowner? $231,420. When this vast difference in finances is considered, it becomes easy to see why making homeownership accessible to those with lower income levels can be an important hand-up into greatly increased economic opportunity.
There are many reasons why homeownership can help people generate wealth over time. Possibly the most obvious is the continuous investment represented by making a monthly mortgage payment. Unlike renting, where a monthly payment simply transfers from the renter to the landlord, effectively subtracting that amount from the household’s financial picture, the majority of a homeowner’s monthly house payment cycles back into their home equity. Equity increases the portion of the home that they truly own, upping their net worth and providing access to funds which can be used for large expenses such as a child’s higher education or improvements to the home, which can further increase the home’s value.
In fact, one survey of Habitat Homeowners found that two-thirds of families felt more confident in their ability to assist their children with obtaining higher education than they did prior to becoming homeowners. Adults are also more likely to decide they can afford to go back to school. In both cases, having greater access to continuing education can lead to better job opportunities and higher pay which, when combined with the growing equity and value of a home, can contribute to exponential financial growth over the span of the home loan.
Furthermore, mortgage rates are often fixed whereas rental prices can fluctuate drastically due to increased property values or because a person has to move frequently. Having confidence in the stability of their housing costs may allow homeowners peace of mind and the improved ability to make long-term financial plans. To illustrate this point, a 2014 study of households with a child preparing to enter college showed that an increase in property value for homeowners also increased that child’s earnings in their adult life, whereas an increase in property values for renters led to a decrease in the child’s later earnings – likely due to the rising cost of rent and corresponding stress on the household.
Homeownership can be especially impactful on the lifestyles of adults 65 and over. Renters in this demographic possessed a median new worth of $6,710 as opposed to $319,200 for homeowners. This means that buying and paying off a home can significantly impact the security and comfort a person experiences during retirement.
In general, each year of homeownership is shown to increase that household’s net worth by more than $9,000. With much of this wealth being tied into home equity, it creates a sort of “forced savings” which can lay a solid financial foundation for the homeowner to build off of in the future, improving their own lives and those of generations to come.
SOURCES:
Benefits of Homeownership Research Study
Is Homeownership still an Effective Means of Building Wealth for Low-Income and Minority Households?
https://www.jchs.harvard.edu/sites/default/files/hbtl-06.pdf
Homeownership is Still Financially Better than Renting
https://www.urban.org/urban-wire/homeownership-still-financially-better-renting
How Homeownership Delivers Unsurpassed Family Wealth