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Listener Chris Horner from Kenosha, Washington, asks: 

Does homeownership really build wealth? My observation is that the best way to build wealth is to be employed and take advantage of every savings opportunity that your employer offers. 

With housing prices skyrocketing in recent years, homeownership has become increasingly out of reach for many Americans. 

David Reiss, a law professor at Cornell University who studies housing policy, said there is a bit of a chicken-or-the-egg question when it comes to homeownership and wealth: Does homeownership build wealth, or do people who build wealth buy homes? 

There is some truth to the latter, but the general consensus among experts is that homeownership does build wealth, he said.

That’s due to a variety of factors: home values appreciate over time, home ownership is like a forced savings account because you’re paying down your mortgage, and homeowners can benefit from tax subsidies, experts told Marketplace. 

The major benefits of homeownership 

Over the past 10 to 15 years, housing prices have increased dramatically across most urban, suburban and even rural areas, said Jose Loya, an assistant professor of urban planning at the University of California, Los Angeles.

“So the rate of return or the amount of wealth, depending on when you purchased, has dramatically increased for homeowners,” Loya said. Depending on the metro area, the rate of return is anywhere between 8% and 20% a year, he said. 

Assets like exchange-traded funds generally appreciate around 8% to 12% a year, Loya said. 

And the cost of borrowing, up until two years ago, had been really low, Loya pointed out. During the early years of the pandemic, homeowners were able to secure 30-year mortgage rates below 3%.  

But the majority of the wealth that homeowners accrue actually does not come from house appreciation, it comes through the mortgage interest deduction, Loya said.

“We lower the cost of home ownership dramatically in the U.S. In fact, the mortgage interest deduction is actually the largest subsidy in the U.S. tax code,” Loya said. “Without government subsidies, because that's what they are, homeownership as an asset would not actually be as appealing from a financial and economic standpoint.” 

The mortgage interest deduction allows homeowners to deduct the mortgage interest they paid on the first $750,000 of their mortgage debt. But you have to itemize your deductions instead of taking the standard deduction, which only 11% of taxpayers do. 

Another benefit of homeownership is that you’re also forced to save as you pay off your house, Reiss said. 

“The typical person builds up equity over time by paying down their mortgage,” he explained. Once you pay off the house, you’re the only one who owns it and your lender has no claim over it, he said. 

Homeownership drawbacks, inequities and barriers

For minority and low-income communities, homeownership doesn’t provide the same level of wealth accumulation, Reiss said. 

Home values in majority-white neighborhoods have risen faster, with values in these areas growing $230,000 between 2012 and 2022, compared to $122,500 for majority-Black neighborhoods over the same time period, according to the real estate brokerage Redfin.

Research from the Brookings Institute has also found that home values in Black neighborhoods are about 21% to 23% below what they would be in non-Black neighborhoods.

The wealth you’ve accumulated by being homeowner will also depend on when you purchase your house. Home appreciation prior to the last 15 years was less than 5% a year, Loya said.

Many families are also struggling to afford housing. Millions have been priced out of the market due to high housing costs and interest rates, according to Harvard University’s Joint Center for Housing Studies. In 2024, the national median single-family home price grew to five times the median household income, according to the center. 

In “cities of opportunity” that have good job prospects, like New York, Los Angeles or San Francisco, housing costs are very expensive, Reiss said. In San Francisco, the average home value is $1.2 million, according to Zillow. 

But in places where housing is more affordable, there are fewer job opportunities, Reiss said. 

There is some good news: home prices are starting to cool down. But prospective buyers are still sitting it out for now due to uncertainty about the job market and the possibility that prices could fall even lower. 

Owning a home is also a big commitment and entails taking on a lot of responsibilities. 

“Are you ready to be the person who deals with a leak or with a broken toilet or stuff like that? Not everybody wants to do that,” Reiss said. 

And if you’re planning to move in a few years, it may not make sense to purchase a house, Reiss added. 

Chris Horner, our listener, told Marketplace that he relocated multiple times and any profit he made from the house he owned in each area was negligible. 

Homeownership can be a heavy burden if your job is unstable and your income fluctuates, Loya said.

In some places, it may be better to rent than own if the cost of owning is too high relative to the cost of renting, Loya said. 

And renters are able to move more freely, while most homeowners essentially have a contract that lasts between 15 to 30 years, Loya said.

Homeownership might not also be a great prospect depending on the type of loan you get. 

“More and more individuals, because the prices are so high, are choosing to get into riskier and higher cost loans in order to afford a home,” Loya said. 

Are there other ways to build wealth?

Billionaire Warren Buffet once said “investing in yourself is the best thing you can do,” an axiom that Reiss said he agrees with. 

“I think effectively what he's talking about is education. So you have the ability to create marketable skills that can generate income over your working life,” Reiss said.

Another way to invest in yourself is to improve your financial literacy, Reiss said. He noted that one of his friends had been putting her retirement savings in a money market account, failing to reap any returns from upswings in the stock market. 

Reiss said you can build wealth by saving early, having a diversified portfolio, and investing in index funds, which are generally low-cost, low-risk investment vehicles that allow you to invest in a pool of companies. 

Horner said he maxed out his 401(k), which has helped him build a nice nest egg and has been far more successful than his home purchases.

You can also start your own business. Small businesses have high levels of appreciation or growth, but it requires a lot of involvement and can be risky, Loya said. 

If you do decide to purchase a home, the ROI isn’t the most important factor you should consider when buying a house. 

“People shouldn't lose sight of the fact that homeownership is first and foremost about having a home for you and your loved ones,” Reiss said.