A couple recently asked me about the relationship between home ownership and net worth. They are contemplating buying their first home.  “In your books, Tom, you mention that nearly all millionaires are homeowners . . . approximately 95%.”  Most homeowners, however, are not millionaires.  And no one is going to hand you a check for seven figures when you close on your first home.  However, there is some correlation between home ownership and net worth.  According to government statistics, the median household net worth for renters has hovered around the $4,000 to $5,000 level during the last 15 years.  For the same period, the median net worth for homeowners has been 30 to 45 times greater.  I estimate that the net worth for homeowners today is about $180,000.  But don’t count on the appreciation of your home to make you wealthy.  In Stop Acting Rich, I mention that if all costs are accounted for in real terms homes appreciate very little, if at all.  One of the keys to building wealth is to live in a home that you can easily afford. 

The above mentioned couple plans on buying a house that would require annual mortgage payments of about 15% of their household income.  In a crude way, making house payments can be viewed as “forced savings.”  Most people with mortgages put enough money aside to make the payments.  Yet most of these same people do not have the self discipline that millionaires have, i.e. investing 15% of their income annually.

Two previous blogs, Wealth is not Income, Income is Not Wealth  and Average Rich or Median Poor discuss another misconception about wealth:  that most Americans are wealthy.  Given the recent upswing in the stock market, there have been several reports about the increasing level of household net worth.  The average American household has an estimated net worth of $575K.  This may sound like a lot of money to you and to millions of prospective immigrants. 

Yes we are a rich nation overall if you believe in averages.  But averages do not send children or grandchildren to college or pay for a year or two stay in a nursing home.

However, there is no such thing as the “average” household.  A much better figure is the median household net worth which I estimate today to be less than $85K.  Why is it that the upswing in the average net worth is more pronounced than the median figure?  About one half of all households in America do not own stock, and most of those are on the light side of the median.