How Owning a Home Builds Your Net Worth
Owning a home is a major financial milestone and an achievement to take pride in. One major reason: the equity you build as a homeowner gives your net worth a big boost. And with high inflation right now, the link between owning your home and building your wealth is especially important. If you’re looking to increase your financial security, here’s why now could be a good time to start on your journey toward homeownership. 🎯 Owning a Home Is a Key Ingredient for Financial Success A report from the National Association of Realtors (NAR) details several homeownership trends, including a significant gap in net worth between homeowners and renters. It finds: “. . . the net worth of a homeowner was about $300,000 while that of a renter’s was $8,000 in 2021.” To put that into perspective, the average homeowner’s net worth is roughly 40 times that of a renter’s. This difference shows owning a home is a key step in achieving financial success. 🎯 Equity Gains Can Substantially Boost a Homeowner’s Net Worth The net worth gap between owners and renters exists in large part because homeowners build equity. When you own a home, your equity grows as your home appreciates in value and you make your mortgage payments each month. As a renter, you don’t have that same opportunity. A recent article from CNET explains: “Homeownership is still considered one of the most reliable ways to build wealth. When you make monthly mortgage payments, you’re building equity in your home . . . When you rent, you aren’t investing in your financial future the same way you are when you’re paying off a mortgage.” But on top of that, your home equity grows even more as your home appreciates in value over time. That has a major impact on the wealth you build, as a recent article from Bankrate notes: “Building home equity can help you increase your wealth over time, . . . A home is one of the only assets that have the potential to appreciate in value as you pay it down.” In other words, when you own your home, you have the advantage of your mortgage payment acting as a contribution to a forced savings account that grows in value as your home does. And when you sell, any equity you’ve built up comes back to you. As a renter, you’ll never see a return on the money you pay out in rent every month. Owning a home is an important part of building your net worth. If you’re ready to start on your journey to homeownership, let’s connect today. Schedule a Zoom Meeting with Steve!📅 Want to stay updated? Join our VIP Email List!
What Does the Rest of the Year Hold for Home Prices?
Whether you’re a potential homebuyer, seller, or both, you probably want to know: will home prices fall this year? Let’s break down what’s happening with home prices, where experts say they’re headed, and why this matters for your homeownership goals. In 2021, home prices appreciated quickly. One reason why is that record-low mortgage rates motivated more buyers to enter the market. As a result, there were more people looking to make a purchase than there were homes available for sale. That led to competitive bidding wars which drove prices up. CoreLogic helps explain how unusual last year’s appreciation was: “Price appreciation averaged 15% for the full year of 2021, up from the 2020 full year average of 6%.” In other words, the pace of appreciation in 2021 far surpassed the 6% the market saw in 2020. And even that appreciation was greater than the pre-pandemic norm which was typically around 3.8%. This goes to show, 2021 was an anomaly in the housing market spurred by more buyers than homes for sale. Home Price Appreciation Moderates Today This year, home price appreciation is slowing (or decelerating) from the feverish pace the market saw over the past two years. According to the latest forecasts, experts say on average, nationwide, prices will still appreciate by roughly 10% in 2022 (see graph below): Why do all of these experts agree prices will continue to rise? It’s simple. Even though housing supply is growing today, it’s still low overall thanks to several factors, including a long period of underbuilding homes. And experts say that’s going to help keep upward pressure on home prices this year. Additionally, since mortgage rates are higher this year than they were last year, buyer demand has slowed. As the market undergoes this change, it’s true price appreciation this year won’t match the feverish pace in 2021. But the rapid appreciation the market saw last year wasn’t sustainable anyway. Today, the market is beginning to move back toward pre-pandemic levels. But even the forecast for 10% home price growth in 2022 is well beyond the 3.8% that’s more typical for a normal market. So, despite what you may have heard, experts say home prices won’t fall in most markets. They’ll just appreciate more moderately. If you’re worried the house you’re trying to sell or the home you want to buy will decrease in value, you should know experts aren’t calling for depreciation in most markets, just deceleration. That means your home should still grow in value, just not as fast as it did last year. If you’re thinking of making a move, you shouldn’t wait for prices to fall. Experts say nationally, prices will continue to appreciate this year, just at a more moderate pace. When you’re ready to begin the process of buying or selling, let’s connect so you have a local market expert on your side each step of the way.
3 Graphs To Show This Isn’t a Housing Bubble
With all the headlines and buzz in the media, some consumers believe the market is in a housing bubble. As the housing market shifts, you may be wondering what’ll happen next. It’s only natural for concerns to creep in that it could be a repeat of what took place in 2008. The good news is, there’s concrete data to show why this is nothing like the last time. There’s a Shortage of Homes on the Market Today, Not a Surplus The supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation. For historical context, there were too many homes for sale during the housing crisis (many of which were short sales and foreclosures), and that caused prices to tumble. Today, supply is growing, but there’s still a shortage of inventory available. The graph below uses data from the National Association of Realtors (NAR) to show how this time compares to the crash. Today, unsold inventory sits at just a 3.0-months’ supply at the current sales pace. One of the reasons inventory is still low is because of sustained underbuilding. When you couple that with ongoing buyer demand as millennials age into their peak homebuying years, it continues to put upward pressure on home prices. That limited supply compared to buyer demand is why experts forecast home prices won’t fall this time. Mortgage Standards Were Much More Relaxed During the Crash During the lead-up to the housing crisis, it was much easier to get a home loan than it is today. The graph below showcases data on the Mortgage Credit Availability Index (MCAI) from the Mortgage Bankers Association (MBA). The higher the number, the easier it is to get a mortgage. Running up to 2006, banks were creating artificial demand by lowering lending standards and making it easy for just about anyone to qualify for a home loan or refinance their current home. Back then, lending institutions took on much greater risk in both the person and the mortgage products offered. That led to mass defaults, foreclosures, and falling prices. Today, things are different, and purchasers face much higher standards from mortgage companies. Mark Fleming, Chief Economist at First American, says: “Credit standards tightened in recent months due to increasing economic uncertainty and monetary policy tightening.” Stricter standards, like there are today, help prevent a risk of a rash of foreclosures like there was last time. The Foreclosure Volume Is Nothing Like It Was During the Crash The most obvious difference is the number of homeowners that were facing foreclosure after the housing bubble burst. Foreclosure activity has been on the way down since the crash because buyers today are more qualified and less likely to default on their loans. The graph below uses data from ATTOM Data Solutions to help tell the story: In addition, homeowners today are equity rich, not tapped out. In the run-up to the housing bubble, some homeowners were using their homes as personal ATMs. Many immediately withdrew their equity once it built up. When home values began to fall, some homeowners found themselves in a negative equity situation where the amount they owed on their mortgage was greater than the value of their home. Some of those households decided to walk away from their homes, and that led to a wave of distressed property listings (foreclosures and short sales), which sold at considerable discounts that lowered the value of other homes in the area. Today, prices have risen nicely over the last few years, and that’s given homeowners an equity boost. According to Black Knight: “In total, mortgage holders gained $2.8 trillion in tappable equity over the past 12 months – a 34% increase that equates to more than $207,000 in equity available per borrower. . . .” With the average home equity now standing at $207,000, homeowners are in a completely different position this time. If you’re worried we’re making the same mistakes that led to the housing crash, the graphs above should help alleviate your concerns. Concrete data and expert insights clearly show why this is nothing like the last time.
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