With the surge in U.S. home prices since 2020, Americans have more home equity than ever before. As Realtor.com reported in September 2025 (emphasis mine):
In the second quarter of 2025, the Flow of Funds data from the Federal Reserve showed that the total value of owner-occupied real estate rebounded after last quarter’s retreat, reaching a record high of $49.3 trillion. Home equity mirrored this trend, also hitting an all-time peak of $35.8 trillion.
Due to the high concentration of wealth in U.S. housing, some have begun to argue that rising real estate values don’t represent real wealth.
Kevin Erdmann, a scholar at the Mercatus Center, recently released a paper on this topic titled “We Are Not as Wealthy as We Thought We Were.” In the paper, Erdmann claims that rising U.S. home values don’t translate to tangible wealth changes, but to “a regressive transfer of incomes from tenants and new homebuyers to existing real estate owners.” Erdmann argues that home values are going up because of undersupply, not because Americans are getting richer.
Michael Green (now famous for his $140k poverty line post) echoed this sentiment:
But if the home you live in goes from $200,000 to $1,000,000, you are not wealthy, because the replacement home also costs $1M. You are trapped. You cannot sell the house and take the profit, because you still need a place to sleep, and the house across the street also costs $1,000,000.
You haven’t gained purchasing power. You have simply experienced a revaluation of your Cost of Living.
Under these specific conditions, Green is correct. If your home goes up in value and the other homes in your area go up in value and you want to own a home in your area, you haven’t gained any wealth.
Thankfully, this isn’t your only option. Green admits that you can access your home equity if you downsize (i.e. move to a cheaper region, sacrificing income/opportunity/quality of life), or borrow against it (i.e. HELOC, reverse mortgage). Putting borrowing aside, downsizing is a valid option for unlocking your home equity.
But, if you don’t want to downsize, there’s an even better option that Green overlooked—renting!
Yes, you can sell your home, realize your home equity, and go rent a single-family home instead. Though supply will be limited in some neighborhoods, you may be surprised by what you can find in your area (see Zillow).
The reason I even recommend this approach is because rents haven’t risen nearly as much as home prices have in recent years. As you can see in the chart below (from FRED), U.S. rents have only slightly outpaced the nominal U.S. median household income since 1984:
In particular, U.S. rents are up 4x in nominal terms since 1984 while incomes are up about 3.6x.
If you divide the change in rent by the change in the median U.S. household income over this period, you’d see that rent relative to income rose from 2000 to 2012, but has been basically flat ever since:
In fact, rents have only increased by 7% (relative to the median household income) from 1984 through 2024.
Now compare this to what’s happened to U.S. home prices over the same time period:
Though the median U.S. household income is up 3.6x since 1984, U.S. home prices are up 5.5x.
And if you divide the change in home prices by the change in median household incomes, you’d see that home prices have increased by 50% (relative to incomes) since 1984:
This data lines up with Kevin Erdmann’s research which found that, “From 1975 to 2023, the total value of residential real estate in the United States increased by 59 percent relative to incomes.”
This is one of the core problems with the U.S. housing market today—home prices have increased too much relative to incomes. Thankfully, rents haven’t increased anywhere near as much.
This is why I recommend renting as a way to realize your home equity value. Of course, run the numbers for yourself and see if it makes sense. I did, and it’s one of the reasons why I still rent.
When I run the numbers to buy a $1 million, two-bedroom unit in Jersey City, my total cost comes out to around $8,400 a month. This includes property tax, maintenance, insurance, and a 30-year fixed rate mortgage at 6% (after a 20% down payment). Yet, I recently signed an 18-month lease for a two-bedroom unit in Jersey City for $4,650 a month (or about 45% less).
If I invested the difference for 30 years (while earning 5% nominal annual returns and experiencing 3% annual rent increases), I’d end up $600,000 ahead in the renting scenario. That’s over half a million dollars in extra wealth with only a 2% real return! If I re-run the calculation with a 4% real return, I’d end up $2.4M ahead as a renter. Additionally, I’d earn this while maintaining my liquidity and never having to deal with home maintenance.
Of course, money isn’t the only variable in this decision, but it demonstrates that home equity can be real wealth if you are flexible in how you use it. But if you never downsize, borrow against it, or become a renter, you will never realize your home equity (only your heirs will).
Individual Wealth is Real, Aggregate Wealth is Fake
Though I believe that home equity is real wealth, I only believe this on the individual level. If you go and try to sell your home, you could transform your home equity into tangible wealth.
But, if a large proportion of homeowners tried to sell their properties, they couldn’t. In such a scenario, prices would decline dramatically and we’d all soon realize that their home equity was indeed…fake.
But this is true of any asset class, not just real estate. If every S&P 500 index fund owner tried to sell their shares tomorrow, stock prices would collapse. If every gold holder tried to part with their gold, the shiny metal would lose most of its value.
The truth is that financial wealth only exists for specific individuals in specific moments of time. That’s when it can be turned into something real. But when large groups of people try to make their wealth “real” all at once, that’s when it disappears. As I’ve said before, “You don’t know the price until you sell.”
Until then, happy investing and thank you for reading!
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This is post 485. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data
