Homeownership is Key to Household Wealth
According to the 2016 Survey of Consumer Finances (SCF), nationally, the primary residence represents the largest asset category on the balance sheets of households in 2016 (as shown in Figure 1 below). At $24.2 trillion, the primary residence accounted for about one quarter of all assets held by households in 2016, surpassing other financial assets1 (20%), business interests (20%) and retirement accounts (15%).
The 2016 Survey of Consumer Finances (SCF) was published by the Board of Governors of the Federal Reserve System. Compared to the quarterly Financial Accounts of the United States (previously known as the Flow of Funds Accounts), which provides aggregate information on household balance sheets, the SCF provides family-level data2 about U.S. household balance sheets and is available every three years. This post uses the 2016 data from the Survey of Consumer Finances (SCF) to analyze household balance sheets, especially their primary residence, by age categories.
In Figure 2, the bars represent the distribution of major assets on household balance sheets by age categories in 2016 and the lines show the changes in the shares of the primary residence, business interests and other financial assets.
As shown in Figure 2, total assets were $3.7 trillion for households under age 35, while they were $35.6 trillion for households aged 65 or older. The aggregate value of assets held by families where the head was aged 65 or older was approximately 10 times larger than those held by families where the head was under the age of 35. The increases in the total assets among age groups indicate that the value of assets grows with age groups.
Moreover, the distribution of major assets on household balance sheets varies by age group. Across age groups where households were under the age of 55, the aggregate value of the primary residence was the largest asset category on these households’ balance sheets. For households aged between 55 and 64, the primary residence fell to the third largest asset category, following business interests and other financial assets, and for households aged 65 or older, the primary residence became the second largest asset category, less than other financial assets, as business interests shrunk.
Although the aggregate value of the primary residence increased with age, partly reflecting higher homeownership rates across age categories, the aggregate value of the primary residence as a share of total assets declined with age. The decline in the share of total assets represented by the aggregate value of the primary residence was offset by growth in the share of other asset categories in aggregate, most notably business interests, other financial assets, and retirement accounts.
An analysis of the SCF suggests that the offsetting changes in the shares of these asset categories are not mutually exclusive. As shown in Table 1 below, the households who owned primary residences also owned the majority of the other assets in aggregate as well, such as other residential real estate3, vehicles, other non-financial assets4, business interests, retirement accounts, stocks and bonds and other financial assets. The results shown in Table 1 combined with the figure above suggest that owner-occupied households expand into and build-up the value of other asset categories as well.
Since homeowners own the vast majority of assets in aggregate, Table 2 presents median values across all these homeowners by age. After rising for homeowners aged between 35 and 44, the median value of the primary residence remained constant at $200,000 for homeowners between the ages of 35 and 64 before declining for those aged 65 and above.
While the median value of homeowners’ primary residence remained constant between 35 and 64, the median value of homeowners’ other financial assets and retirement accounts continued to rise over these categories. At the same time, the median value of business interests, other non-financial assets, and stocks and bonds among homeowners remained zero, indicating that fewer than half of homeowners own these assets at any age cohort.
However, as illustrated by Table 3 below, the median value of business interests, other non-financial assets, and stocks and bonds grew over the 35 to 64 age categories among households that owned these assets. Table 2 indicates that a minority of homeowners own such assets, but Table 1 suggests that the owners of these assets are likely to be homeowners. As a result, the median value of both non-financial and financial assets on homeowners’ balance sheets, as shown in Table 2 above, rose with age.
On the debt side of homeowners’ balance sheet, the value of the primary mortgage debt was the largest liability faced by the homeowners. However, the median value of mortgage debt declined between the 35 to 64 age categories, more than half of homeowners above the age of 65 did not have mortgage debt (nor a balance on any of the other major debt categories).
Across homeowners, the median amount of primary residence equity, home equity, rose successively with age, largely reflecting a lower amount of mortgage debt as opposed to a higher home value. A previous post illustrated how households 55 and above account for 67 percent of housing equity because they “have had more time to accumulate wealth”.
Among homeowners under the age of 45, home equity was the largest category of the household’s net worth (the sum of medians does not equal the median of the total). However, for homeowners above the age of 45, non-primary residence equity eclipses home equity as the larger portion of net worth, reflecting the accumulation of other assets by homeowners in later life stages.
1 Other financial assets include loans from the household to someone else, future proceeds, royalties, futures, non-public stock, deferred compensation, oil/gas/mineral investments, and cash, not elsewhere classified.
2 According to the SCF, the term “families”, used in the SCF, is more comparable with the U.S. Census Bureau definition of “households” than with its use of “families”. More information can be found here: https://www.federalreserve.gov/publications/files/scf17.pdf.
3 Other residential real estate includes land contracts/notes household has made, properties other than the principal residence that are coded as 1-4 family residences, time shares, and vacation homes.
4 Other non-financial assets defined as total value of miscellaneous assets minus other financial assets.
This article was originally published on NAHB’s eyeonhousing.org by Jing Fu.