Wealth Effects of Homeownership

A recent survey showed three out of four homeowners said their home represents a large portion of wealth, and many use the value of their homes when making important financial decisions.

The buildup of home equity provides Americans with both financial resources and security. Homeowners use their home equity to get cash for emergencies as well as the purchase of big-ticket items. In addition, the capital gains people realize from the sale of their home are a significant source of downpayment funds for most repeat buyers, but are used for other purposes as well.

For owners who clearly understand the value of the wealth in their homes as opposed to the value of their stocks, bonds and pension plans, the survey found that three out of four home owners say their house wealth is greater than their stock wealth. Given the stable growth in home values over time, especially when compared with other kinds of investments, it gives people the confidence to use that equity for various needs.

Given the increasing volatility in the stock market over the last few years, this underscores the importance of homeownership as the primary nest egg for most Americans.

Nearly two out of five repeat home buyers chose a more expensive home to further improve their standard of living and increase their potential for building even greater household wealth in the future.