'A catalyst for building wealth': If you waited until last year to buy a home or you're still renting, you'll likely be on the wrong side of a widening wealth divide — here's why

How we got here

During the Great Recession, housing prices dropped significantly across the country, but historically low interest rates that followed made for a very good buying opportunity.

In the decade that preceded the pandemic, the value of owner-occupied housing had climbed up. Across 917 metropolitan and micropolitan areas, home values rose more than $8 trillion, from $15.9 trillion in 2010 to $24.1 trillion in 2020, according to a report from the National Association of Realtors (NAR).

Ultra-low interest rates during the pandemic years that followed would encourage a boom in buying, causing house prices to spike to historic levels in many areas, pushing homeownership out of sight for many.

Since then, the cost of owning a home has hit new heights. According to an October housing market report from Redfin, the median monthly mortgage payment hit a record high of $2,866. That’s up substantially from August 2020, when the typical monthly payment would have been just $1,581.

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The disparity is growing

The net worth of homeowners is rising a lot faster than it is for non-homeowners.

In fact, the median-priced home has become worth about $190,000 more from 2012 to 2022 — as a result, the net worth of a typical homeowner is about 40 times the net worth of a renter, according to an April report from the NAR.

“This analysis shows how homeownership is a catalyst for building wealth for people from all walks of life,” NAR chief economist Lawrence Yun told the association’s Realtor Magazine. Yun likened a monthly mortgage payment to a “forced savings account” for homeowners.

Nearly half of mortgaged residential properties were considered “equity rich” by mid-2023, the highest level in at least four years, according to ATTOM’s U.S. Home Equity and Underwater report. To be equity rich means that the loan balance on your home is half, or less than half, of the property’s estimated market value.

“Equity levels were high even during the recent downturn, and now they are going back up and better than ever,” ATTOM’s CEO Rob Barber said. ATTOM is a nationwide real estate data company.

But it’s concentrated in certain areas

Not every corner of the country has been equally impacted. While six of the top 10 equity-rich states are in the West, nine of the 10 states with the lowest percentages of equity-rich homes were in the Midwest and South, according to ATTOM.

As for renters, the average price for a one-bedroom apartment can reach thousands of dollars per month depending on where you live. If you’re paying rent in a major city, it’s going to be hard to save for a down payment, putting homeownership that much further down the line.

It stands to reason that those who have homes and bought them at the right time will continue to see their net worth increase. Meanwhile, people who haven’t bought will continue to fall behind — especially if they live in an expensive city.

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Other ways to invest in property

Of course, buying single-family homes and condos isn't the only way to invest in real estate.

Amid persistent inflation and the uncertain economy, real estate moguls are still finding ways to effectively invest their millions.

Prime commercial real estate, for example, has outperformed the S&P 500 over a 25-year period. With the help of new platforms, these kinds of opportunities are now available to retail investors. Not just the ultra-rich.

With a single investment, investors can own institutional-quality properties leased by brands like CVS, Kroger and Walmart — and collect stable grocery store-anchored income on a quarterly basis.

With files from Lauren Bird