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Homeownership Remains Primary Driver of Household Wealth

The 2019 Survey of Consumer Finances (SCF) showed improvements in economic well-being for many across income and wealth distributions over 2016 to 2019. The homeownership rate increased from a low of 63.7% in 2016 to 64.9% in 2019. Moreover, the primary residence continued to be the largest asset on the balance sheets of households in 2019 (Figure 1), accounting for about one quarter of all assets held by households and surpassing other financial assets1 (20%), business interests (20%) and retirement accounts (15%).

The Survey of Consumer Finances (SCF) is a triennial cross-sectional survey of U.S. families published by the Board of Governors of the Federal Reserve System. It provides detailed information on the finances of U.S. families2, including income, net worth, balance sheet components, credit use, and other financial outcomes. This post focuses on primary residences using 2019 data, as homeownership is an important component of household wealth accumulation.

Figure 2 illustrates the distribution of major assets on household balance sheets by age in 2019 and the line graph indicates the changes in the shares of the primary residence. Given lifecycle effects and the fact that the primary residence is the key driver of household wealth, the value of total assets and primary residence increased for households under age of 65 and declined for households aged 65 or older. However, the decline of primary residence share was offset by growth in share of other asset categories such as business interests and other financial assets.

Though the aggregate value of assets increased with age, the distribution of major assets on household balance sheets varied among age, race and ethnicity groups. Across age groups for which households were under the age of 55 and above 75, the primary residence was the largest asset on these households’ balance sheets. For households aged between 55 and 74, the primary residence falls to the second largest asset category, following business interests and other financial assets.

Figure 3-6 shows the distribution of assets by age, race and ethnicity. For white (non-Hispanic) households, the distribution was similar to one shown in Figure 2 as white (non-Hispanic) households accounted for 69% of the sample.

A critical finding was that the primary residence was the largest asset for black/African American (non-Hispanic), Hispanic/Latino and Other or Multiple race3 groups in all age groups. The only exception was for households aged between 64 and 75, for which the share of primary residence was approximately equal to the share of other financial assets. And most primary residence shares in these three racial and ethnic groups were higher than 30%, indicating that household wealth for these groups heavily relied on the value of primary residence, especially for Hispanic/Latino households.

Although primary residence shares vary among age, race and ethnicity, the changes in the shares of these asset categories are not mutually exclusive. As shown in Table 1, households that owned primary residences also had holdings among the majority of other asset classes, such as other forms of residential real estate4, vehicles, other non-financial assets5, business interests, retirement accounts, stocks and bonds and other financial assets. The result shown in Table 1 combined with the figures above suggest that owner-occupied households are able to build their wealth gains into other categories.

Since homeowners own the vast majority of assets in aggregate, it is worth examining the median values across all these homeowners by age (Table 2). Following the continued growth between 2013 and 2016, the median net worth of all household increased between 2016 and 2019. The increase in family net worth (wealth) was largely attributed to broader economic gains along with rising home prices and stock market increases.

For 2019, the median net worth of homeowners was $255,000 and the median net worth of renters was lower ($6,300).  This gap in household net worth, on an order magnitude of 40, reflects both constraints of households entering homeownership (higher income households have greater ability), as well as impacts of homeownership itself (attaining homeownership leads to higher wealth).

After rising for homeowners aged between 35 and 44, the median value of the primary residence remained constant at $250,000 for homeowners between the ages of 35 and 54 before declining for those aged 55 and above. While the median value of homeowners’ primary residence remained constant between 35 and 54, the median value of homeowners’ other financial assets and retirement accounts continued to rise. Meanwhile, the median value of business interests, other non-financial assets, and stocks and bonds among homeowners remained zero, indicating that fewer than half of homeowners own these assets at any age cohort.

Though similar findings of median value of homeowners’ primary residence and other financial assets were found in analysis of race and ethnicity (Table 3-6), the median value of homeowners’ retirement accounts varied among groups. The median value of homeowners’ retirement accounts remained zero among all ages for Hispanic/Latino and that amount was significantly less for black/African American (non-Hispanic), suggesting that for more than half of all homeowners, homeownership was the key driver of household net worth.

On the debt side of homeowners’ balance sheet, the value of the primary mortgage debt was the largest liability faced by the homeowners. However, the median value of mortgage debt declined between age 45 and 64 and fell to zero for age 75 or older, indicating more than half of homeowners above the age of 65 did not have mortgage debt (nor a balance on any of the other major debt categories).

Moreover, the median amount of primary residence equity, home equity, which increases successively with age, largely reflects a lower amount of mortgage debt as opposed to a higher home value. Among homeowners under the age of 45, home equity was the largest category of the household’s net worth (the sum of medians does not equal the median of the total). However, for homeowners above the age of 45, non-primary residence equity eclipses home equity as the larger portion of net worth, reflecting the accumulation of other assets by homeowners in later life stages.

Note:

1 Other financial assets include oil and gas leases, futures contracts, royalties, proceeds from lawsuits or estates in settlement, and loans made to others. One specific financial asset excluded from this category and any other is employment-related stock options.

2 According to the SCF, the term “families” used in the SCF, is more comparable with Census Bureau definition of “households” —which can include one-person families—than with its use of “families.”

3 The other or multiple race group consists of a very racially/ethnically diverse set of families, including those identifying as Asian, American Indian, Alaska Native, Native Hawaiian, Pacific Islander, other race, and all respondents reporting more than one racial identification.

4 Nonresidential real estate includes the following types of properties unless they are owned through a business: commercial property, rental property with five or more units, farmland and ranch land, undeveloped land, and all other types of nonresidential real estate

5 Other non-financial assets defined as total value of miscellaneous assets minus other financial assets.

by NAHB Eye on Housing