- Homeowners are more than 2x likely than renters to feel financially stable
- Homeowners are more likely to have a positive net worth than renters, 81% compared to 52%
- Nearly a quarter of renters think they’re going to retire early, yet 25% report having $0 in savings
Owning a home is one of the most effective ways to build wealth in America. In fact, the median net worth of U.S. homeowners is 40x higher than that of U.S. renters. Those priced out of homeownership, and therefore the opportunity to build equity, are forced to find other housing solutions, which most often includes renting. This could be setting renters back from building wealth, paying down debt and even retiring, especially when you consider the average year-over-year increase in rent from 2021 to 2022 was ~14% nationwide.
According to a study conducted by Qualtrics on behalf of Credit Karma, homeowners are more likely to report having a positive net worth than renters, 81% compared to 52%. At the same time, homeowners are more knowledgeable about how to calculate their net worth, which could indicate it’s a number they’re more likely to track and measure over time. According to the study, more than half of homeowners know how to calculate their net worth (56%) compared to 40% of renters. Beyond contributing to a positive net worth, homeownership provides a sense of financial stability to American homeowners.
Why do homeowners feel more financially stable?
The cost of living is on the rise, pricing many Americans out of homeownership and others out of affordable housing. However, those who already own homes may be more financially stable than those who don’t. Homeowners are almost twice as likely to report feeling financially stable than renters, 62% compared to 33%. This makes sense when you consider that to even purchase a home, homeowners had to take close stock of their finances before going through an arduous mortgage approval process that required months, if not years of saving, paying down debt and getting their credit in good shape. In fact, 72% of homeowner respondents have Prime+ credit scores, compared to 37% of renters. Homeowners also might be more motivated to maintain a positive net worth given they might be more judicious with their finances since their largest asset is on the line. To top it off, most American homeowners with mortgages today have been able
to take advantage of record low mortgage rates over the last few years – 28% have rates at or below 3%, while 72% have rates at or below 4%. On the other hand, renters are dealing with steep increases in rent prices, which may be preventing them from saving money. A quarter of renters report having $0 in savings, compared to just 10% of homeowners. Conversely, a quarter of homeowners have more than $50k in savings, compared to just 6% of renters.
Some renters may have unrealistic expectations for retirement
In addition to increased housing costs, many consumers are grappling with inflation and expensive borrowing costs, making it harder for renters to save money, and retirement savings is no exception. A staggering 41% of renters have not saved any money for retirement, while a majority of homeowners (85%) have.
Interestingly, even though renters are more likely to have no savings (25%), and nearly half (48%) report having a net worth of $0 or less, nearly a quarter (23%) of renters identify with the FIRE (Financial Independence, Retire Early) movement. This is a movement of people who have committed to aggressively saving and investing money with the goal of retiring sometime in their 30s and 40s, which poses the question: how realistic is retiring early for renters who haven’t made much progress in saving money?
“There could be a plethora of reasons behind why homeowners are faring better financially than renters, including demographic factors like age or the fact that a majority of homeowners today were able to lock in a low mortgage rate during the pandemic, while rent costs have remained elevated nationwide,” said Aniva Hinduja, general manager of Home and Mortgage at Credit Karma. “While in many cases you can argue owning a home is a better investment decision than renting, the truth is potential first-time homebuyers are at a disadvantage in today’s market when it comes to housing affordability. We know from a previous Credit Karma study that more than half (54%) of renters don’t believe they will ever be able to afford a home. Eventually, the market will change and mortgage rates will ease, but in the meantime, American renters should prioritize putting at least some money into savings, especially if they plan to retire one day.”
Methodology:
This survey was conducted online within the United States by Qualtrics on behalf of Credit Karma between March 20, 2023 and April 3, 2023 among 1,006 adults ages 18 and older.