For many Americans, trends in mortgage rates and home prices impact their sense of financial wellbeing, regardless of whether they’re currently planning to buy or sell a home.

The reason for this is simple: Homes are our biggest asset, generally speaking. With diligent investing and planning, many of us can grow a portfolio of assets that surpasses the value of our home. However, that process takes time—meaning that for decades, many Americans’ net worth is determined by the value of their home.

As such, we’re answering a few of the biggest questions around housing and net worth.

1.     Is it worth it to own a home?

As with most financial planning topics, the answer to this question depends on personal circumstances. Here’s how the pros and cons between buying and renting have traditionally broken down.

Over the past decade, we’ve seen several flaws emerge with this logic. First—renting is not necessarily cheaper than buying. Once you get past the hurdle of the down payment, the average monthly mortgage payment in many U.S. cities is lower than the average cost of rent. Second—many people don’t have the discipline it takes to invest consistently. Even if you follow a regimented plan, committing to monthly investments may not build wealth as quickly as buying equity in a home with a monthly mortgage payment.

We see this play out in the data. Every three years, the Federal Reserve looks at trends in American income and net worth and how they breakdown across various demographics. The most recent study, published in 2022, showed an interesting relationship between the net worth of renters and homeowners.

Renters saw their average net worth increase by a very significant 40%; homeowners saw their average net worth increase by just 20%. Overall, however, the average net worth of a renter was $154,900. The average net worth of homeowners was more than $1.5 million.

So, while your personal circumstances will always matter more than government data, research suggests that yes, owning a home is a smart financial strategy.

2.     Will I get more value out of new construction?

New home construction slowed significantly during COVID-19 and its impact on the supply chain.

As some of those material issues improve, however, homebuilders and construction companies are paying more to finance builds. Beyond that, builders are working to fill the backlog created during COVID; they’re also hoping to compensate for the lack of existing homes on the market.

We’ve seen people resist the urge to sell their homes since doing so might result in them trading a 3-4% mortgage rate for a 6-7% mortgage rate.

Critics, including many on popular social media hosts, point out that new construction may not meet the same quality standards as it has in the past, due to a renewed focus on quantity over quality.

3.   What’s going on with home prices?

Home prices have hit record highs in 2024… more than once. Part of that is down to supply and demand. There’s simply not enough supply (as we discussed in the last section) to meet demand, so prices have increased. This trend plays out in other data points, too—the number of existing homes sold in 2023 was 19% lower than in 2022.

But are high home prices a good thing or a bad thing? It depends.

When home prices go up significantly, it can restrict anyone looking to relocate, like families who need more space or retirees looking to downsize. On the other hand, current homeowners could potentially see their net worths increase.

Generally, your net worth changes with your home equity, or the percentage of your home that you own. That said, a significant increase in the value of your home can still increase your net worth under certain circumstances. For instance, you’d likely need to request a formal appraisal of your home, versus referencing its estimate on Zillow. This type of appraisal might assess the likelihood that the increase in your home’s value is permanent.

It’s also important to remember that home prices often vary significantly by region and even neighborhood. Some of the factors that influence home prices, like material costs and mortgage rates, fluctuate based on location, as does the desirability of certain school districts, neighborhoods, and so on.

Not surprisingly, home prices jumped significantly in the wake of the pandemic. In Oklahoma, the average price of a single-family home in June 2024 was 44% higher than in January 2020, according to data from Zillow. In Texas, prices jumped 40% during the same window.

When Zillow compared home price data to what percentage of income Oklahomans were spending on their mortgages, it turns out Oklahoma is one of the most affordable states for home ownership.

Something else to keep in mind? Houses in rural areas are seeing their value increase faster than suburban or urban homes, according to the Federal Reserve Bank of Kansas City.

If you have questions about the value of your home and how it affects your net worth or overall financial picture, reach out to our team.