With Home Ownership, You are Investing in your Future - Here's why

Home buyers are still active. But after the 2020 economic collapse and the current efforts by the Fed to curb the effects of inflation, people are wondering if they must buy homes now or wait for the economy to stabilize.

Bob Broeksmit, President and CEO of the Mortgage Banker, put it best.

"The desire for homeownership is strong, but prospective buyers are waiting for the mortgage rates to subside and the economic picture to be more appealing."

If you're one of those home buyers, you must know about the housing market's current happenings and the benefits it will bring you in the long term.

You can find a lot of information about the value that homeownership brings to your overall net worth. However, people's perspectives about homes have changed; they are more interested in maintaining their 401k than homeownership to build wealth.

However, homeownership is, like it always has been, one of the essential elements of accumulating generational wealth. However, according to Bloomberg, millennials have a higher 401k than the previous generation, but they aren't better off financially. The reason for their higher 401k balance lies in the fact that most millennials are less likely to own a home.

The stats show that millennials represent 43% of home buyers in America, a 20% decrease from Gen X and 30% less than baby boomers. They are resorting to becoming renters – which, in the long-term, is not a sustainable way to maintain their finances.

And the data clearly shows the disparity in the net financial worth between renters and homeowners. Charts show that a homeowner and a renter with the same median income will vastly differ in their net wealth. For instance, for a renter earning $110k a year, the net wealth is close to $334k, which is vastly less than a homeowner's $1.3 million net worth, whose earnings are in the same range.

Why Homeowners have a Higher Net Worth than Renters

There is a multitude of reasons why homeowners have a higher net worth as compared to renters. Three of the biggest ones are as follows:

1. Mortgage Payment Contributes to the Net worth

Every time you pay a mortgage, you get closer to owning your home. And once the mortgage is paid off, you have an asset similar to forced saving. And a renter has to pay the landlord every month, never owning a house.

2. House value appreciation

The value of a home appreciates over the years. While the recent economic turmoil has dropped the rate of a home price increase to 10%, compared to last year's 3 to 4% increase, it is still high.

3. Tax reduction

As a homeowner, you can deduct home mortgage interest, home equity loan, mortgage points, private mortgage insurance, and SALT (state and local tax) from your taxes. In the long term, these deductions compound, and you'll be able to accumulate more net worth over the years. Being a renter means your expenses will go into rent, while being a homeowner will put a portion of your earnings toward the mortgage. One gets you closer to building your net worth, while the other just takes a big chunk out of your paycheck. It is pretty obvious which one will help you invest in your future. Contact your local real estate advisor right now to find the best home to buy – if you're ready to invest in yourself.