This is Part II of a three-part series on the importance of owning real estate to create wealth.
In any financial analysis, assets are broken down into financial and non-financial assets. Financial assets include stocks, bonds, cash accounts, mutual funds, insurance, and all types of liquid investments held in bank, brokerage, and retirement accounts.
Non-financial assets include less liquid assets or assets that are not readily and quickly convertible to cash. Among non-financial assets, housing accounts for about 70% of the assets of middle-income Americans age 55-64, excluding the value of Social Security and defined benefit plan pensions. Among retirees, housing is typically the largest overall expense.
On the liability side, housing expenses generally constitute a significant share of total spending during income-earning years and retirement. One study found that housing expenses included 31% of all expenditures for all consumer units (presumably with retired and employed household members), and more than half of housing expenses for homeowners are for mortgage payments.
Numerous academic and government studies show that home equity has a paramount role in determining overall household wealth. A 2024 study by the U.S. Census Bureau found that housing equity accounts for about 80% of total household net worth ($175 trillion to $181 trillion).
Housing ownership also skews by age. People over age 55 have the highest homeownership rate, but a shortage of housing inventory and record prices are keeping younger people out of the housing market. The percent of first-time homebuyers dropped to a record low of 21%, while the typical age of first-time buyers climbed to an all-time high of 40 years, according to a National Association of Realtors study.
This is bad news for people who will lose out on building home equity and will not see its full benefits over time. “Delayed or denied homeownership until age 40 instead of 30 can mean losing roughly $150,000 in equity on a typical starter home,” according to Shannon McGahn, NAR executive vice president.
More recent data from the U.S. Census and other sources have found that housing is the largest single financial asset among American families, especially among homeowners in the age group approaching retirement (usually age 55–64).
How Home Ownership Builds Wealth
“There is nothing which so generally strikes the imagination of mankind and engages the affections of mankind as the right of property.”
–Judge William Blackstone, “Commentaries on the Laws of England, 1766
The dream of homeownership has been a persistent feature of American society since Thomas Jefferson promoted land ownership as an essential element of nation-building. After World War II, ownership became more available and affordable through a combination of G.I. loans, the expansion of the Federal Housing Administration (with its relatively low-down-payment policy), and dedicated residential suburban tracts.
As the middle class expanded, the residential real estate industry continued to expand its residential product offerings. In contrast, in the late 1970s, the residential mortgage industry began to develop a wider variety of loans with different down payment, term, and interest rate combinations to make homeownership more available to a broader audience.
These innovations, combined with lower interest rates, helped increase homeownership in the U.S. from 64% in 1995 to 69% in 2015. U.S. homeownership peaked at 68.8% in 2005. This increase reversed a homeownership trend that was nearly flat for 30 years.
As homeownership increased, real estate values began a gradual escalation, with median home prices rising from $18,000 in January 1953 to $301,000 in January 2020. From 2000 to 2005, the gap between median home values and median home incomes of households headed by people aged 30 to 34 increased in 49 states, most notably in the West.
Homeownership also builds wealth by accessing home equity value that builds over time. Equity is critical because home equity makes up a large share of a retiree’s net worth. (Net worth is the value of all assets minus all debts.) Data from 2026 found that the median net worth (the midpoint where half have more and half have less) of people aged 65 to 74 is $410,000. The main source of wealth in this age group is home equity, with about 76% owning a home.
Homeowners can use their equity to do four things;
- Take out a home equity loan (known as a second mortgage)
- Obtain and borrow against a home equity line of credit (HELOC)
- Refinance their home with a larger mortgage and take the cash (a cash-out refinance)
- Obtain a reverse mortgage.
Other options include selling the home, buying a less expensive home, renting, and pocketing the net proceeds.
All of these factors demonstrate the benefits of homeownership:
- Homeownership has historically served as an effective vehicle for accumulating wealth through appreciation, accessing home equity, and reducing taxes on real estate-related activities.
- Homes have generally appreciated over time, especially compared to stocks and bonds.
- Homeowners build community relationships and have an emotional connection with their homes.
- Owners can earn “sweat equity” by improving their homes and benefit from favorable tax treatment.
- Homeowners with equity can use their home to help fund retirement through tools such as reverse mortgages, refinancing, and lines of credit.
