In recent years, the surge in U.S. home prices has led to a record-breaking increase in home equity. According to Realtor.com, the total value of owner-occupied real estate reached an all-time high of $49.3 trillion in 2025, with home equity peaking at $35.8 trillion. However, this rapid appreciation in real estate has sparked a debate: does rising home equity truly represent wealth?
Kevin Erdmann, a scholar at the Mercatus Center, argues in his paper "We Are Not as Wealthy as We Thought We Were" that increased home values do not translate to real wealth. Instead, they reflect a transfer of income from tenants and new buyers to current homeowners, driven by undersupply rather than increased wealth.
Michael Green echoes this sentiment, stating that if your home value increases but so do the prices of other homes in your area, you haven't gained wealth. Your purchasing power remains unchanged because the cost of living has merely been revalued. However, Green acknowledges that you can access your home equity by downsizing or borrowing against it. But there's another option: renting.
Renting can be a viable strategy to unlock home equity because rents have not risen as sharply as home prices. Data from FRED shows that while U.S. rents have increased fourfold since 1984, median household income has risen by 3.6 times. In contrast, home prices have surged by 5.5 times, highlighting a significant disparity.
By selling your home and renting, you can realize your home equity without the long-term commitment of homeownership. For example, renting a two-bedroom unit in Jersey City costs significantly less than buying, and investing the difference could lead to substantial financial gains over time.
While home equity can be considered real wealth on an individual level, it becomes "fake" when viewed collectively. If many homeowners tried to sell simultaneously, prices would plummet, revealing the illusory nature of perceived wealth. This phenomenon isn't unique to real estate; it applies to any asset class.
Ultimately, home equity can be real wealth if you're flexible in utilizing it. Downsizing, borrowing, or renting are all strategies to convert home equity into tangible wealth. However, without taking action, home equity remains unrealized, benefiting only future heirs.
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