The path to homeownership can be bumpy. Buyers must withstand bidding wars, contingencies, complex tax laws and an array of market factors beyond most anyone’s control. Still, buying a house is typically the single best investment a family can make.
Homeownership is, in fact, the largest source of wealth creation in the United States, while the median net worth of the average American homeowner is more than 40 times that of the average renter.
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A decision of this magnitude comes with a number of potential hurdles, and it’s immensely important to get the decision right. Certified housing counselors and agents who are Realtors can help ensure consumers do just that. The primary motivation for buying a home in the United States differs from person to person. For many, it's financial — an opportunity to grow home equity and lock in a stable monthly housing payment. For others, it's emotional — a chance to build roots, create stability and feel more connected to their community.
In Bankrate's March 2023 Financial Security survey, 74% of respondents ranked homeownership as a key component of the American dream.
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A report released in April by the National Association of Realtors analyzed how homeowners across income levels have increased their net worth in recent years and decades. Between 2012 and 2022, the median value of homes owned by lower-income Americans climbed 75% — a gain of roughly $100,000. Middle-income homeowners saw their properties appreciate 68% over the same period — equivalent to a wealth increase of $122,000.
Today, home equity is the largest financial asset for American households in the middle three quintiles of the income distribution, accounting for between 50% and 70% of this group's total net worth.
Making a mortgage payment each month is, in many ways, comparable to contributing to a stable savings account. Homeowners chip away at their loan balance and increase their claim on the home's overall value in the process. Many Americans who bought a median-value home 10 years ago and stayed consistent with their monthly payments have already paid off over 20% of their mortgage.
Unfortunately, many Americans today feel that their homeownership dreams are beyond reach. Current homeowners may be celebrating the growth in the value of their homes, but aspiring buyers may view that widespread price appreciation as one more factor keeping them renting.
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All Americans deserve the opportunity to achieve their homeownership dreams and build lasting wealth. To help make this possible — especially as housing markets across the country slowly become more buyer-friendly — prospective buyers can take advantage of several resources.
First-timers can benefit from connecting with a certified housing counselor. These trained agents with the U.S. Department of Housing and Urban Development can help prospective home buyers plan for future home purchases and get their finances mortgage-ready.
Agents who are Realtors can also help people navigate the home-buying process. They're uniquely positioned to leverage their knowledge of a local market, extensive networks and down payment assistance programs to open doors to affordable housing opportunities. It's no wonder nearly nine in 10 successful home buyers enlist the help of a real estate agent or broker.
There are also government loans and vouchers available through the Federal Housing Administration and the Housing Choice Voucher homeownership program.
Many states also have programs that create homeownership opportunities. Be sure to check your state's Housing Finance Agency for state-specific programs, information and advice.
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Everyone deserves safe, quality housing at a price they can afford. Even when the market seems complex, challenging or overly competitive, prospective buyers can still obtain their own piece of the American Dream, capitalizing on the resources available through real estate professionals and the array of valuable programs they support.
Disclaimer
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
FAQs
Equity. Purchasing a home can be regarded as a better use of your money than renting, investment-wise, because with the latter you don't build any home equity. Your monthly rent payment goes directly to the landlord, with no ownership stake being built over time.
Why is buying a house the best investment you will make? ›
Equity. Purchasing a home can be regarded as a better use of your money than renting, investment-wise, because with the latter you don't build any home equity. Your monthly rent payment goes directly to the landlord, with no ownership stake being built over time.
How can owning a home be a great investment for the future? ›
One of the most compelling reasons to buy a home now is the opportunity to build equity over time. Unlike renting, where payments go to a landlord, mortgage payments made by homeowners build equity in the property. This equity is a valuable asset and part of your net worth.
Is buying property a good investment? ›
In the long run, owning a home is a good investment. When you rent, your money goes to your landlord, whereas you can see a return on your investment over time when you put your money toward a home.
Is buying a house a good way to build wealth? ›
Buying and owning a home can lay the foundations of generational wealth. Home equity can increase substantially over time as you pay down your mortgage and your property's value appreciates. Different ways to pass down property include wills, trusts, joint ownership and transfer-on-death deeds.
Is it really worth buying a house? ›
If you're in a financial position to do so and ready to stay put for at least a few years, buying a house is totally worth it. You'll gain stability, build equity and a retain sense of ownership and control, rather than being at the whim of a landlord.
How is a house an investment? ›
A home is a long-term investment. If you buy a home as a primary residence, it can increase in value over time and provide a financial windfall when you sell. You gain equity in the home over time, which can provide a source of emergency funding if your financial situation takes a turn for the worse.
What's the point of owning a house? ›
As a homeowner, you'll build equity as you pay down your loan principal and as your property value increases (also known as appreciation). Home equity contributes to your financial stability and provides an option when you need to access funds.
What type of house is good for investment? ›
The best investment property for beginners is generally a single-family dwelling or a condominium. Condos are low maintenance because the condo association takes care of external repairs, leaving you to worry about the interior.
What credit score is needed to buy a house? ›
Credit score and mortgages
The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).
While stocks are a well-known investment option, not everyone knows that buying real estate is also considered an investment. Under the right circ*mstances, real estate can be an alternative to stocks, offering lower risk, yielding better returns, and providing greater diversification.
What is the best investment? ›
These investment vehicles top that wealth-generating list.
- Stocks. ...
- Mutual funds and exchange-traded funds. ...
- Bonds. ...
- Cash. ...
- Roth IRAs. ...
- Alternative investments. ...
- Real estate. ...
- Work income.
One of the best ways to start a wealth creation is homeownership. As the home's value increases and you pay down your mortgage, your equity will grow. You can borrow against the equity to pursue other financial goals in the future, or you can sell the home for a profit.
What is the fastest way to build wealth in real estate? ›
One of the easiest ways to build wealth through real estate is through property appreciation. In areas with high growth potential, the value of single-family homes that you invest in can increase over time.
Are homeowners wealthier than renters? ›
renters will shock you. According to the Federal Reserve, homeowners had a median net worth of $396,200 in 2022 and a mean net worth of $1,530,900 (which obviously has been driven up by some very wealthy people). Renters, on the other hand, have a median net worth of just $10,400 and a mean net worth of $154,900.
Why is it better to buy a house? ›
Homeownership brings intangible benefits, such as a sense of stability and pride of ownership, along with the tangible ones of tax deductions and equity. Renting doesn't mean you're throwing away money every month, and owning doesn't always help you build wealth in the long run.
Why real estate is the ideal investment? ›
On its own, real estate offers many benefits, such as cash flow, tax breaks, equity building, competitive risk-adjusted returns, and a hedge against inflation. There are many other ways why real estate is such a good investment, so if you are interested in doing so, start doing your research now.
Is building a house a good investment? ›
Great returns: New construction makes sense as an investment because a property will often be worth more than the cost of labor and materials used to build it. You can further the value of a new property by choosing to build in a good neighborhood, or a hot market experiencing high demand for housing.
Is buying a house an investment or consumption? ›
So would renting then be considered an investment? A more appropriate label to an "investment" in our society is charity. So buying a house could be considered a consumable object with charitable benefits, whereas the hardwood floors is simple consumption.
