The median American renter has a net worth of $10,400. The homeowner’s net worth is $400,000

CNN
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Two years ago, Elizabeth Grantham decided she didn’t want to rent much longer, so she moved from her hometown in the expensive San Francisco Bay Area to Washington state to save up to buy a home.

“Our rent was going up every year. Even the cost of parking at our apartment complex went up,” Grantham, 31, recently told CNN. “Then you finally move in, and pretty soon that rent starts going up. That’s how it’s been all my adult life.”

The story of the housing market in recent years has been a growing divide between the “haves” and the “have nots”, between those who rent and those who own a home. Homeowners in America have seen their paper wealth explode housing prices have risen throughout the country At the same time, after the start of the Covid pandemic, rents have gone down a bit, rents have also gone up, eating into many people’s savings.

A final report The Aspen Institute highlights the wealth gap that has emerged between America’s homeowners and renters. The average homeowner in America has a net worth of $400,000 as of 2022, the most recent data available, and the median net rental value is just $10,400, according to the report. This means that the typical landlord has nearly 40 times the wealth of the typical tenant.

Next month, Grantham will finally achieve her goal of homeownership when she closes on a two-bedroom, one-bathroom starter home in Tacoma, Washington, in January. They settled locally, about an hour outside of Seattle, because housing prices were more reasonable compared to major cities.

Grantham said his long-term goal is to build equity in the home.

“We’re going to pay a bit more for a mortgage than rent, but we’re okay with it because at least we’re paying ourselves,” he said.

For others, dreams of home ownership feel far away.

“I want to be a homeowner so badly,” TikTok founder Jordan Swanson said in a recent video. “It’s literally impossible in this economy.”

Those who want to buy their first home they have faced the one-two punch of rising home prices and stubbornly high mortgage rates. The median existing home sales price was $407,200 in October, according to the National Association of Realtors. That’s the 16th consecutive month of year-over-year price increases.

At the same time, the days of mortgage rates below 4% appear in the rear window after the Federal Reserve begins raising interest rates to combat inflation in 2022. On Wednesday, the Fed will announce tapering. interest rates for the third time this year. However, the average 30-year fixed mortgage rate was 6.6% last week, according to Freddie Mac.

Home ownership has long been one of the best ways to build wealth in the US. As a homeowner pays off their mortgage, home equity grows and the value of their property can appreciate.

However, Katherine Lucas McKay, associate director of the Financial Security Program at the Aspen Institute, said she was surprised by the report’s findings.

“It really drives home how far ahead in wealth homeowners are,” he said.

The Aspen Institute’s report — which used data from two main surveys, the Federal Reserve’s Survey of Consumer Finances and the Survey of Household Economics and Decision Making — looked at income earners in each income bracket, which make up more than a third of US households. less positive cash flow, more debt burden and less savings than homeowners. Renters are also more likely to have student loan debt.

“Home ownership itself is a major wealth generator,” McKay said. “By not owning a home, there are ways that your wealth doesn’t just grow. Instead, you put more money into rental housing every year, and someone else benefits as the value goes up.”

Some may prefer the flexibility offered by renting, however, and the wealth gap between renting and owning isn’t just due to home equity. Nearly 80% of homeowners have a potential asset outside of their primary residence, which the Aspen Institute defines as retirement accounts, stocks and bonds, business equity, other real estate, and other financial assets, including cryptocurrencies. That’s compared to 48% of renters who own those types of assets, according to the report.

McKay said studies have shown that renters are less likely to open investment and retirement accounts.

“That’s one of the things people can really do to grow their wealth outside of buying a home,” he said.

In many ways, however, the deck is stacked against renters, said Shane Phillips, a research fellow at the UCLA Lewis Center for Regional Policy Studies.

“We do a lot to promote home ownership. We give big tax breaks on your mortgage, the sale of your home and things of that nature,” he said of existing government programs. “And the current conditions make it more difficult for people who don’t own a home or who don’t already have a lot of wealth to get on that housing ladder.”

It’s not all bad news for renters, however. There are some signs that the rental market may be cooling, providing some much-needed respite for renters already straining their budgets.

Rental prices fell more than usual in November, a Zillow report was released this month, and Zillow’s share of discounted rental listings also set a new record last month at 38.6%.

There has also been a construction boom in the rental market. A million new multifamily units that have begun construction in recent years are expected to hit the market this year and more next year. 50 year high. This increased inventory may reduce rent increases in the near future.

However, this may not be enough for some renters to start a housing search in the near future. Rising house prices aren’t the only barrier to entry: Mortgage rates are consistently high. Grantham said he accepted a mortgage with a rate of 7.2%, which is on the high end of a typical 30-year fixed-rate mortgage.

“Interest rates may not drop that much anytime soon, and we were willing to rent more. So we were willing to make that commitment,” Grantham said.