Recently released research by NAHB reaffirms that homeownership is an important component of household wealth accumulation.
Part of the reason why the primary residence is an important source of household wealth is because of its size on the household balance sheet.
As Figure 1 illustrates, the primary residence represents the largest asset category on the balance sheets of households. At $20.7 trillion, the primary residence accounted for almost one-third, 30%, of all assets held nationally by households in 2010. According to the report, the primary residence represented 62% of the median homeowner’s total assets and 42% of the median home owner’s wealth. In addition, the median value of the primary residence across all households was $100,000. In contrast, the median values of financial assets and vehicles were only $17,000 and $12,200 respectively.
Another reason why the home is a large part of household balance sheets is because it is a widely held asset. The report shows that two out of every three households, 67%, owned a primary residence in 2010 while just over half of households, 50%, held a retirement account. Meanwhile, 16% of households owned either stocks or bonds.
The recent bust in the housing market had a severe impact on household balance sheets. Plummeting house prices contributed to the decline in the value of household assets. At the same time, prices of other assets such as equities also dropped, thus leaving the average contribution of the primary residence to a household’s total assets relatively unchanged, as shown in the report. However, since the debt underlying the primary residence did not decline as quickly as house values, the average household experienced a decline in both total wealth and in housing’s contribution to a household’s net worth. Nevertheless, as house prices recover, so too should household wealth.
Equity in residential property tends to be a particularly important component of wealth for lower income, older households. According to the report, the median net worth for households over the age of 75 with household income below $35,000 was $110,900 in 2010. This is 25 times the net worth for households under age 45 in the same income bracket have. Also for 75+ households with incomes under $35,000, the median share of net worth held as equity in a primary residence is 60 percent. Younger households in the same income bracket tend to have no equity at all in a home (the median residential equity share of total net worth for households with incomes under $35,000 in which the head was younger than 54 was $0). Higher income households over age 75 have higher net worth and more equity in a home in absolute terms, but equity in a primary residence accounts for a smaller share of total net worth.