Recent data reveals shocking wealth gap between homeowners and renters
Homeowners have a nearly 40x higher net worth than renters—one of the widest wealth gaps in history, according to the Federal Reserve’s Survey of Consumer Finances.
Between 2019 and 2022, homeowners saw their net worth skyrocket from $295,480 to $396,200—a 34% gain. Although renters saw a slightly bigger increase at 43% over that period, their net worth was just $10,410 in 2022.
Homeowners have always had a higher net worth than renters, but the gap has widened since the end of the 2008 financial crisis.
In 2010, for example, homeowners had an average net worth of $236,300 compared to $6,970 for renters. That's a gap of roughly 34x.
Economists have long touted housing as the primary source of wealth for Americans. They say you can think of it as a form of “forced savings” when homeowners pay their mortgage and pad their equity each month.
In addition to increasing their equity, homeowners have seen the value of their properties surge, especially during the pandemic, when record-low mortgage rates and remote work sparked a housing boom.
According to Fed data, average home prices peaked at $475,900 in the fourth quarter of 2022.
Renters, on the other hand, don’t benefit from equity or rising property valuations. As Creditnews has reported, they’ve also seen their rent payments surge to record highs since the pandemic.
Unfortunately, for many renters, accessing the American dream of homeownership is harder than ever.
A struggle for first-time buyers
Housing affordability has become one of the most pressing issues facing Americans today. For many, making the jump from renting to buying for the first time is a bridge too far.
According to Creditnews Research, buying a home in 2023 was 54% more expensive compared to just two years earlier. For first-time homebuyers, that meant spending an additional $1,223 per month on mortgage costs—assuming a 10% down payment.
All said, 2023 was likely the worst year ever for housing affordability.
Redfin data analyzed by Creditnews Research found that the average household earning less than $75,000 a year could only afford 15.5% of the homes that went up for sale. That’s the lowest on record.
“The constant rate changes and ongoing market uncertainty is causing havoc,” Aaron Strutt, director at Trinity Financial, told the Financial Times. “First-time buyers are struggling to access mortgages, especially if they have smaller deposits.”
According to the National Association of Realtors (NAR), first-time homebuyers made up just 32% of all home purchases in 2023—below the long-run average of 38%.
Renters and homeowners struggle with payments
Despite the massive wealth gap, renters and homeowners share one thing in common: Both are struggling to keep a roof over their heads.
A sizable portion of homeowners and renters spend more than 30% of their monthly incomes on housing, which is above the Department of Housing and Urban Development’s recommendation.
According to Creditnews Research, about one in three homeowners are in this boat. Data from the Census Bureau shows that a staggering 49% of renters spend more than 30% of their income on housing as well.
Research from the Harvard Joint Center for Housing Studies shows that the bottom 20% of income earners face “severe cost burdens,” meaning they pay at least half of their income for rent and utilities.