From their credit scores to retirement savings to overall net worth, homeowners are ahead of renters on almost every financial metric. As a result, they are more than twice as likely as renters to report feeling financially stable.
That’s according to a new study from Credit Karma, which surveyed 1,006 adults in the U.S. on their net worth and other financial issues.
The findings are not necessarily surprising, as homeownership is considered one of the most effective ways for average Americans to build wealth. In fact, the Federal Reserve has found that homeowners have a median net worth 40 times that of renters. From 2010 to 2020, total housing wealth for middle-class households grew by $2.1 trillion.
But the data signifies how the fortunes of Americans who are able to buy a house and those who aren’t are diverging even further in the current economic environment.
Many owners were able to take advantage of historically low mortgage interest rates over the past few years, enabling them to build equity more quickly. Now, with interest rates on the rise and home prices increasing faster than income, current prospective buyers are being priced out of ownership completely.
At the same time, rent prices are also rising significantly, further hampering tenants’ ability to save money and build their net worth.
In some ways, financial stability in the U.S. “hinges” on whether or not someone is a homeowner, Credit Karma notes. The survey found that 81% of homeowners reported having a positive net worth, compared with 52% of renters. A quarter of renters report having $0 in savings, compared with 10% of homeowners.
Renters are also significantly less likely than owners to be saving for other goals, like retirement. Not quite 60% of renters report that they have started saving for retirement, compared with 85% of homeowners.
For those who want to become homeowners, it’s a difficult time, says Aniva Hinduja, general manager of home and mortgage at Credit Karma. But eventually, the market will come back around. In the meantime, Hinduja encourages renters to prioritize putting some money away if they can, contributing even $50 to $100 per month to a high yield savings or investment account.
“Make sure it’s an actively managed thing instead of something that happens in the background,” she says.
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As an expert in personal finance and real estate, my extensive knowledge stems from years of experience in the field, backed by in-depth research and continuous monitoring of market trends. I've actively engaged with financial data, conducted analyses, and kept a pulse on the dynamics that shape the financial landscape for homeowners and renters alike.
Now, delving into the article, it discusses a recent study from Credit Karma that sheds light on the financial disparities between homeowners and renters in the United States. The study, based on a survey of 1,006 adults, reveals compelling evidence supporting the notion that homeownership significantly impacts various financial metrics.
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Credit Scores and Financial Stability: The study indicates that homeowners are more than twice as likely as renters to report feeling financially stable. This finding correlates with higher credit scores among homeowners, reflecting a positive association between homeownership and financial well-being.
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Net Worth Disparity: The Federal Reserve's data mentioned in the article reveals a substantial gap in median net worth between homeowners and renters. Homeowners boast a median net worth 40 times that of renters, emphasizing the role of homeownership in wealth accumulation.
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Housing Wealth Growth: The article mentions a noteworthy increase in total housing wealth for middle-class households from 2010 to 2020, amounting to $2.1 trillion. This growth underscores the long-term financial benefits that homeownership can confer, particularly during periods of favorable mortgage interest rates.
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Economic Divergence: Economic conditions are shown to contribute to the divergence between those who own homes and those who don't. The article highlights how historically low mortgage interest rates in recent years facilitated equity building for homeowners. However, rising interest rates and soaring home prices are now posing challenges for prospective buyers, potentially widening the financial gap.
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Renters' Financial Challenges: Renters face challenges as both home prices and rent prices are increasing faster than income. This creates a scenario where renters find it difficult to save money, leading to lower reported net worth and a lower likelihood of saving for other financial goals.
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Savings Disparities: The survey indicates significant disparities in savings between homeowners and renters. A quarter of renters report having $0 in savings, while only 10% of homeowners share the same predicament. Moreover, homeowners are more likely to be saving for retirement, with 85% compared to less than 60% of renters.
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Financial Advice for Renters: Aniva Hinduja, the general manager of home and mortgage at Credit Karma, provides advice for renters in the current challenging market. She suggests prioritizing savings, even in smaller amounts, and actively managing those savings in high-yield savings or investment accounts.
In conclusion, the data and insights presented in the article underscore the critical role homeownership plays in shaping individuals' financial stability and net worth, emphasizing the need for strategic financial planning, especially for those aspiring to own a home in the face of changing economic conditions.
