Final answer:
A household's net worth, or equity, is the monetary value the owner would have after selling the house and repaying any outstanding bank loans they used to buy the house. It is calculated by subtracting the value of the loan outstanding from the value of the home.
Step-by-step explanation:
An owner's equity in a house is the monetary value the owner would have after selling the house and repaying any outstanding bank loans they used to buy the house. For example, imagine that you buy a house for $200,000, paying 10% of the price as a down payment and taking out a bank loan for the remaining $180,000. Over time, you pay off some of your bank loan, so that only $100,000 remains, and the house's value on the market rises to $250,000. At that point, your equity in the home is the value of the home minus the value of the loan outstanding, which is $150,000.
Net worth, also known as equity, is the sum of the value of all assets owned by a household, including money in bank accounts, financial investments, a pension fund, and the value of a home. It represents the ownership interest of shareholders in a company and is calculated by subtracting liabilities from assets. In the case of a household, net worth represents the difference between the value of all assets and any outstanding debt or liabilities.
For many middle-class Americans, home equity is their single greatest financial asset. The total value of all home equity held by U.S. households was $23.6 trillion as of the middle of 2021, according to Federal Reserve data.