The Benefits and Role of Homeownership in Wealth Accumulation: An Analysis of U.S. Households

Homeownership provides numerous advantages to households, offering not only a stable living environment but also a valuable opportunity to accumulate wealth over time through the building of equity. By 2022, 66.1% of U.S. households were homeowners, highlighting the significance of homeownership in American life. For those who owned homes, the median net housing value (the value of the home minus any home-secured debt) saw a substantial increase from $139,000 in 2019 to $201,000 in 2022, driven by rising home prices and relatively stable mortgage debt.

This article delves into the findings from the 2022 Survey of Consumer Finances (SCF), a detailed triennial survey of U.S. family finances conducted by the Board of Governors of the Federal Reserve System. Unlike the quarterly Financial Accounts of the United States, which provides aggregated data on household balance sheets, the SCF offers granular, family-level insights into household finances, collected every three years since 1989.

Homeownership: A Key Component of Household Wealth

Homeownership plays a critical role in wealth accumulation for households. According to the 2022 SCF data, the primary residence continues to be the largest asset category on household balance sheets. In 2022, the total value of primary residences across the U.S. stood at $40.9 trillion, accounting for over a quarter of all household assets. This figure surpasses other significant asset categories such as business interests (20%, $30.8 trillion), other financial assets (19%, $29.8 trillion), and retirement accounts (15%, $23.8 trillion).

The primary residence not only represents the largest asset category but is also widely held by households. In 2022, approximately 66% of households owned a primary residence. In contrast, just over half of households (54%) held retirement accounts, and 21% owned stocks or bonds. Other financial assets, such as checking accounts, money market accounts, and prepaid debit cards, were held by 99% of households, serving more for transactional purposes than wealth accumulation.

Wealth Distribution Across Age Groups

The total value of assets varies significantly across age groups. In 2022, households under the age of 35 held assets totaling $7.6 trillion, while households aged 65 or older held assets valued at $65.9 trillion. This stark difference illustrates how the value of assets typically increases with age.

The composition of assets on household balance sheets also changes with age. For households under 65, the primary residence is the largest asset category. However, for those aged 65 or older, other financial assets surpass the primary residence as the largest asset category. Although the value of the primary residence increases with age, its share of total assets decreases, reflecting a shift toward other asset categories such as stocks, bonds, and retirement accounts.

The Impact of Educational Attainment on Wealth

Educational attainment is closely linked to the value of assets held by households. Households with a bachelor's degree or higher hold assets valued at five times those held by households with some college or an associate degree.

While the primary residence remains the largest asset category across all educational levels, its share of total assets varies. For households with a bachelor's degree or higher, the primary residence represents 23% of total assets, with significant holdings in business interests, other financial assets, and retirement accounts. In contrast, for households without a high school diploma or GED, the primary residence accounts for half of their total assets.

In conclusion, homeownership is a cornerstone of wealth accumulation in the U.S., with its importance varying across different age and education groups. As households age or achieve higher educational levels, their asset portfolios diversify, reflecting broader opportunities for wealth building beyond homeownership.

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THE WEALTH-BUILDING POWER OF HOMEOWNERSHIP

Homeownership plays a crucial role in a household's accumulation of wealth. This article delves into the impact of owning versus renting by examining the balance sheets of homeowner and renter households across assets, debt, and net worth.

Households that own a primary residence build equity, while renters do not. In the third quarter of 2023, CoreLogic's homeowner report revealed that U.S. homeowners with mortgages saw their equity increase by a total of $1.1 trillion, a 6.8% gain from the same period in 2022. Homeowners typically own additional assets beyond their primary residence.

In contrast, renters miss out on wealth accumulation from home price appreciation and mortgage paydown. Additionally, renters generally own fewer assets in aggregate compared to homeowners.

The wealth gap between homeowners and renters is influenced by both home equity and other asset ownership. Most households will experience periods as both renters and homeowners. According to prior NAHB analysis, about 9 out of 10 households will own a home at some point in their lives, highlighting the rental market's role in the journey to homeownership.

In 2022, while nearly every family owned some assets, homeowners owned the majority. The Survey of Consumer Finances (SCF) shows that households owning a primary residence also tend to own other significant assets, such as additional real estate, vehicles, business interests, stocks, bonds, and retirement accounts.

Renters, on the other hand, own far fewer assets. For example, homeowners collectively owned 16 times more stocks and bonds and 15 times more business interests and retirement accounts than renters.

The median values of assets, debt, and net worth for homeowners and renters, broken down by age categories in 2022, reveal that homeownership and housing wealth are strongly age-associated. The median value of the primary residence increases for homeowners aged 35 to 54 and then declines slightly for those aged 55 and above. Similarly, the median value of homeowners' other financial assets rises with age, while retirement account values peak for those aged 45 to 54.

Although the median values of business interests, other non-financial assets, and stocks and bonds among homeowners were zero for fewer than half of homeowners at any age, the value of these assets increased across age categories for those who owned them.

For renters, more than half owned some financial assets, but these did not accumulate with age. Notably, fewer than half of renters owned retirement accounts, additional real estate, other non-financial assets, or business interests at any age. Financial and non-financial asset values for renters aged 65 or older were nearly half the median value of those under 35.

Regarding debt, the primary home mortgage is the largest liability for homeowners. However, the median value of mortgage debt decreases between the ages of 35 and 64, with more than half of homeowners over 65 being mortgage-free and debt-free in other major categories.

For renters, credit card and installment debt are the largest liabilities. The median value of this debt declines between the ages of 35 and 64 and is zero for renters aged 65 or older.

Net worth, defined as the difference between assets and liabilities, is significantly higher for homeowners. In 2022, homeowners had a median net worth of $396,000, while renters had a median net worth of just $10,400. The primary residence equity is the largest component of homeowners' net worth, whereas for renters, non-primary residence equity forms a larger portion, reflecting other accumulated assets.

Across all age groups, the median primary residence equity for homeowners increases, primarily due to lower mortgage debt rather than higher home values. In 2022, homeowners' median net worth was approximately 38 times that of renters. Excluding primary residence equity, homeowners' median non-residence equity was still 15 times that of renters.

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ST. TAMMANY PARISH RANKS THIRD IN STATE FOR VISITOR SPENDING

St. Tammany Parish has secured the third spot in the state for visitor spending, surpassing Baton Rouge, according to Donna O'Daniels, President and CEO of the St. Tammany Parish Tourist and Convention Commission.

This information was shared during O'Daniels' staff report at the board's June 25 meeting in Covington. In 2023, visitor spending in St. Tammany Parish reached $1.3 billion, marking a 1% increase from the previous year. This spending supported 13,907 jobs and generated $426 million in employment earnings. Additionally, visitors contributed $127 million in state and local tax revenues.

"Bottom line, that means that if it were not for the state and local taxes paid by tourists visiting St. Tammany Parish, each household would pay $1,345 more in taxes each year," O'Daniels noted.

The financial report for April and May was presented by Finance and Administration Vice President Devan Richoux, who reported a year-to-date net surplus of $984 and a 3% decrease in year-to-date tax revenues.

Richoux also provided updates on the visitor center's renovation, including the completion of interior demolition, exterior pressure washing and painting, installation of new plumbing lines, and the beginning of interior framing for a new restroom.

Chief Marketing Officer Katie Guasco updated the board on the new website, scheduled to launch on Aug. 28. The redesigned site will feature a new layout and include a community relations video for visitors.

After the meeting, the board celebrated administrative assistant Rae Shipley, who is retiring after 26 years with the commission.

The board's next regular meeting is scheduled for Aug. 20 at 2 p.m., at the Harbor Center near Slidell.

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TIPS AND TO HOMEBUYING IN TODAY’S MARKET

Last year may be remembered as a correction period in real estate history. After a pandemic-driven seller's market, marked by bidding wars, inventory shortages, and skyrocketing prices, the housing market began to cool down in 2022. The impact of inflation and rising interest rates dampened buyer enthusiasm, slowing sales and decelerating price appreciation.

This shift made 2023 a transitional year, and now in 2024, inflation is much lower, but home prices and mortgage rates remain high. Sellers still hold an advantage in many areas due to continued housing scarcity, and no one anticipates a dramatic market crash. However, many analysts predict a shift towards a more balanced market, which would benefit buyers.

Regardless of the economic climate, buying a house can be an exciting and emotional process. Before starting your search, ensure you understand the ins and outs of homebuying to make the best decisions for your family and wallet. Here's a step-by-step guide to help you navigate the process.

Purchasing a home is a major decision that shouldn't be taken lightly. Clarify your personal and financial goals first. "Buyers should think about when they intend on moving and what they want in a home—amenities, ideal location, and how long it could take them to save for a down payment," says Edwence Georges, a real estate agent with RE/MAX in Westfield, New Jersey.

Your credit score plays a crucial role in determining your financing options; lenders use it to set loan terms and rates. The higher your score, the lower the interest rate you'll be eligible for—lower scores equate to more expensive mortgages. Obtain your credit report and score from the three major credit reporting agencies, Equifax, Experian, and TransUnion, for free once a year. If you find any discrepancies, report them to each agency.

To avoid paying private mortgage insurance (PMI), you'll need to put down at least 20 percent of the home's purchase price. Some lenders offer mortgages without PMI with lower down payments, but expect higher interest rates. Research different loan types and government programs that help cover down payment costs for qualified buyers.

Setting a realistic budget for your new home is essential. Consider all expenses to determine what you can afford long-term. "Buyers tend to forget to factor in other costs, like homeowners association fees and maintenance," says Paige Kruger, Realtor and founder of Signal Real Estate in Jacksonville Beach, Florida.

Getting preapproved for a mortgage gives you a clearer picture of how much you can afford and strengthens your offer when bidding on a house. Shop around with at least three lenders or a mortgage broker to increase your chances of securing a low interest rate.

An experienced real estate agent can save you time and money by helping you find the right home and negotiating with the seller on your behalf. Contact several local agents to discuss your needs before choosing one. "Someone with knowledge of an area can tell if your budget is realistic and point you to adjacent areas or other considerations," Kruger says.

While viewing listing photos online is helpful, nothing beats visiting homes in person and exploring the neighborhood and its amenities. Be specific with your agent about the types of homes you want to see, and prioritize must-haves over nice-to-haves.

Understanding how to make an attractive offer on a home can increase your chances of acceptance. Work closely with your agent to prepare a complete offer package, including your offer price, preapproval letter, proof of funds for a down payment, and any terms or contingencies.

A home inspection provides an overall picture of the property's condition and any issues it might have. Major problems might require the seller to make repairs or offer a credit. Your agent can recommend a home inspector and help you negotiate necessary repairs.

Final loan approval requires maintaining your finances and credit during the underwriting phase. Avoid opening new credit lines, making major purchases, or changing jobs before closing. Respond promptly to lender requests and keep your paperwork organized.

A final walk-through is your last chance to address any outstanding issues before taking ownership. Bring your home inspection checklist and repair invoices to ensure everything is in order.

Once all contingencies are met and your lender clears the loan, it's time to close on your new home. Review your closing disclosure three days before the closing date, which outlines your loan details. Attend the closing with your real estate agent, and after signing the paperwork, the home is officially yours.

Traditionally, spring is the peak homebuying season, but your financial readiness is more critical than the time of year. Despite recent high mortgage rates and home prices, buying a house now could be a good move if you're financially stable. If your savings are tight or your credit score needs improvement, it might be better to wait.

Be cautious when buying near the market peak, especially if you plan to stay in the home for only a few years. "Bargain aggressively and be willing to walk away," advises Ken H. Johnson, a real estate economist at Florida Atlantic University.

Each housing market has its own quirks. Partner with a knowledgeable local agent who understands the intricacies of their market to navigate these challenges effectively.

The down payment is often the largest upfront homebuying expense, but there are additional costs like closing fees, property taxes, home insurance, and maintenance to consider. Budget carefully to ensure you can afford these long-term expenses.

Understanding these steps and working with professionals can make your homebuying journey smoother and more enjoyable.

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THE TRUE VALUE OF HOMEOWNERSHIP BEYOND FINANCIAL

With all the headlines and discussions about housing affordability, it's easy to get caught up in the financial aspects of buying a home. It's natural to focus on the dollars and cents involved. However, while it's essential to afford the home you purchase, don't lose sight of why homeownership was significant to you in the first place. Buying a home is much more than a financial transaction. As the National Association of Realtors (NAR) states, "The benefits of purchasing and owning your place of residence are both financial and emotional – pride in homeownership and the feeling of security are huge intangible benefits."

Here's a look at just a few of those more emotional or lifestyle perks, to help anchor you to why homeownership is one of your goals. Owning a home is often linked to better mental health and well-being. This is likely because buying a home is a major milestone. The sense of satisfaction and pride that comes with achieving this goal feels great. A recent article from the Mortgage Reports notes, "By and large, homeownership brings more satisfaction than renting. Surveyed homeowners reported an overall happiness level of 88% compared to 67% for renters."

Homeownership also brings stability, allowing you to put down roots. If you're used to moving every time your lease renews and rent increases, staying put for a while benefits you and your loved ones. A home provides predictability and the chance to build long-term friendships, reducing stress for everyone. As NAR explains, "Families also benefit from homeownership, with studies proving that parents are able to spend less time in a stressed state, therefore spending more time with their children. The ability for parents to feel stable has a huge impact on children's behavioral issues, educational success, and future economic success."

Homeownership also fosters a sense of belonging. As FinHabits states, "Homeowners tend to be more involved in their local communities, leading to a stronger sense of belonging." Your home connects you to your neighborhood and community, giving you a stake in its future. This naturally leads to more involvement and a desire to help improve the area while building long-term relationships with neighbors.

Finally, your home is a place that's all yours. Unless you have specific homeowner's association requirements, you can customize it however you like. If renting has limited your ability to express yourself, homeownership allows you to embrace the latest trends. Whether it's small home improvements or major renovations, your house can evolve with your tastes and lifestyle. Imagine coming home each day to a place that feels uniquely yours—there's no feeling like it.

If you want to enjoy a sense of accomplishment and pride in your living space, connect with a real estate agent to discuss what you need to do to make this future a reality for you.

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One-Third of Homes for Sale Are Newly Built

If you're in the market for a home, there's a good chance you'll come across newly built properties. About 33.4% of single-family homes available for sale in the first quarter of this year were newly built, nearly double the pre-pandemic levels, according to a report by Redfin.

"It doesn't mean necessarily that new construction has ramped up," said Robert Dietz, chief economist of the National Association of Home Builders. Homebuilders are still constructing about 1 million single-family homes a year, he said. "What's happened is that the level of resale inventory has shrunk."

New Builds May Offer More Flexible Pricing

In a housing market plagued with low supply, buyers are increasingly turning to new construction because it offers more opportunities. Nicole Bachaud, senior economist at Zillow Group, recently told CNBC that builders are typically more flexible with pricing. Builders can offer incentives like rate buy-downs, price cuts, and covering closing costs.

Dietz noted that a little less than two-thirds of builders use some kind of incentive to promote sales, such as amenity upgrades, mortgage rate buy-downs, and limited price cuts. About a quarter of builders use price reductions, averaging around 5% to 6%.

The Price Gap Between Existing and New Homes

The median sales price for new houses sold in the U.S. in March was $430,700, according to data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. While new builds still sell for slightly more than existing homes, the price gap has significantly narrowed.

"Prices are much closer to parity than during any point in the last three decades," said Matthew Walsh, assistant director and economist at Moody's Analytics.

Over the last six months, the median price for a new home has been only about 4% higher than the median price of an existing house. Before the pandemic, the median price of a new home was more than 40% higher than an existing house.

The low supply of existing homes has caused prices to rise dramatically, while prices for new builds tend to fluctuate based on interest rates, housing demand, competition for existing homes, and construction costs, Dietz explained.

What to Keep in Mind When Buying a Newly Built Home

If you decide to explore new construction, keep in mind that only about 10% of new homes available for sale are completed and move-in ready, according to Dietz. Most new homes range from empty lots ready to be built on to various stages of construction.

Today's buyer needs "to be strategic, patient, and flexible," said Dietz, suggesting that buyers consider different types of housing and locations and make thoughtful design decisions. Here are four things to pay attention to:

1. Consider a Smaller House: Since 2021, homebuilders have been constructing slightly smaller homes to address affordability issues. Reducing square footage can help lower construction, utility, and maintenance costs. Townhouses made up almost 18% of single-family housing starts in the first quarter of the year.

2. Be Open About Geographic Location: New construction can be more affordable in rural areas due to lower regulatory costs and greater land availability.

3. Keep Construction Costs Down: Major factors like lumber and labor costs impact the cost of a new house. Homeowners can control finishes added to the house. To save on costs, focus on completing structural elements and opt for basic or lower-cost features during construction.

4. Be Mindful of Future Costs: Allow room in your budget for costs that may change significantly after the first year, such as property taxes. Research how often your county reassesses property taxes and what the formula is based on.

Despite potential future costs, new homes often offer long-term savings. "When you're buying a newly built home, you're typically buying a home that's more resilient and more energy efficient," said Dietz, which can mean lower operating costs over time.

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Major Renovations Underway at St. Tammany Parish Tourist and Convention Commission Headquarters

Renovations to the St. Tammany Parish Tourist and Convention Commission headquarters on La. 59 near Mandeville began on May 6, marking the start of a $468,000 overhaul of the 27-year-old building.

Ashley Smith Construction of Covington is the project contractor, and Piazza Architecture Planning of Mandeville is the architect.

Donna O'Daniels, executive director of the commission, said the project will start with exterior work to avoid the peak summer heat. Interior renovations will follow, with some offices receiving only cosmetic updates such as new carpet and paint.

However, other offices will undergo significant changes. Mold had previously grown on ceilings, and wildlife had burrowed into the insulation beneath the building and into the crawl space above it. The building's HVAC system will also be replaced, and an additional restroom will be added.

The building, located between Interstate 12 and Koop Drive, serves as both a visitor center and office space for commission employees.

"The work is badly needed, so we're happy it's underway," O'Daniels said. "We may have to close the office to the public for a few days, but it should be very brief. As work progresses around the building, we can stagger days when staff work from home. We also have some space available to us at the Northshore Community Foundation in downtown Covington."

O'Daniels said the renovations are expected to be complete within three to five months.

"We're hoping by the fall," she said. "We're excited about it. We've already received many compliments on just the new sign that's been put up."

In recent years, the Tourist Commission building had become secluded, with mature tree limbs obstructing it from view. O'Daniels explained that while the building was designed to blend with the natural marshy habitat, it had become "almost invisible" due to overgrown trees.

"The trees then were nowhere near as mature as they are now," she said. "So, we had to cut back a bit within six feet of the building, mainly removing some low-hanging limbs which opened things up a little. You can see the exterior of the building now, and it's going to be getting some brighter colors."

"The whole project will give us better exposure," she added.

Last year, the Tourist and Convention Commission's board of directors allocated $1 million for extensive repairs, but they were pleasantly surprised earlier this year when the low bid came in at less than half that total. Ashley Smith Construction, who also built the current 3,137-square-foot visitor's center/commission headquarters completed in 1997, won the bid.

For more information on the St. Tammany Parish Tourist and Convention Commission, visit www.VisitTheNorthshore.com.

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