The financial benefits of buying a home versus renting one are always up for debate. However, one element of the equation is often ignored – the ability to build wealth as a homeowner.

According to the latest research from the National Association of Realtors (NAR):

“Homeownership is a key pathway to building wealth and narrowing the racial income and wealth inequality gap. Housing wealth (equity) accumulation takes time and is built up by price appreciation and paying off the mortgage.”

An increase in equity builds the wealth of the individual that owns it. This wealth can be passed down to future generations. The Federal Reserve in an addendum to their Survey of Consumer Finances explains:

“There are numerous ways families can transmit wealth and resources across generations. Families can directly transfer their wealth to the next generation in the form of a bequest. They can also provide the next generation with inter vivos transfers (gifts), for example, providing down payment support to enable a home purchase or a substantial wedding gift.”

The Federal Reserve also explains another way wealth (including the additional net worth generated by an increase in home equity) can benefit future generations:

“In addition to direct transfers or gifts, families can make investments in their children that indirectly increase their wealth. For example, families can invest in their children’s educational success by paying for college or private schools, which can in turn increase their children’s ability to accumulate wealth.”

Here’s a look at how equity can build your wealth over time when you own a home.

Equity over the Last 30 Years
The NAR research reveals that the average gain for homeowners over the last five years was $139,134 and over the last 10 years was $218,505. Looking even further back in time, the article says:

“Homeowners who purchased a typical single-family existing-home 30 years ago at the median sales price of $103,333 with a 10% down payment loan and who sold the property at the median sales price of $357,700 in 2021 Q2 accumulated housing wealth of $349,258.”

Homeownership builds household wealth which also enables households to more easily move to the home of their dreams. As Mark Fleming, the Chief Economist at First American, explains:

“As homeowners gain equity in their homes, they are more likely to consider using that equity to purchase a larger or more attractive home – the wealth effect of rising equity.”

If you missed out on the equity gains over the last 30 years, don’t fret. Experts are still calling for substantial growth in equity over the next five years.

Looking Forward at the Equity To Come
The most recent Home Price Expectation Survey, a survey of over one hundred economists, real estate experts, and investment and market strategists, expects home values (and therefore equity) to increase as follows:

• 2021: 11.74%
• 2022: 5.82%
• 2023: 3.94%
• 2024: 3.56%
• 2025: 3.55%

The survey estimates a 31.8% cumulative appreciation over the next five years. Using their annual projections, the graph below shows the equity build-up a purchaser could earn, using a $350,000 home as an example:

That’s a potential increase in household wealth of $111,285 over five years.

Owning a home is one of the best ways to grow your wealth over time. House wealth can impact generations. In many cases, the largest single investment a household has is their home. As that investment appreciates in value, the financial options also increase.

The amount of wealth Americans have stored in their homes has increased astronomically. On average, homeowners gained $33,400 in equity over the last 12 months, and the average equity on mortgaged homes is now $216,000. When it’s time to sell, your home equity can help accomplish your goals. Reach out to our local real estate professionals to discuss how you can take advantage of today’s sellers’ market to get the most out of your home sale.

Patrick Kenah, a REALTOR® Sales Associate with Realty Executives Exceptional Realtors Sparta Branch office has been chosen the 2021 Citizen of the Year for Fredon Township, New Jersey. 

While most people out for a walk will pass by trash in the street. Pat is the kind of guy who picks it up whenever he sees it.  Fredon Township Mayor John Flora stated “I have watched this for over a year, Pat just making things better for his neighbors, and the entire town. The most impressive thing is this was all Pat, and his good will toward others, no bragging, no Facebook post, just a good soul doing for others in his community.  We congratulate him as being chosen as the 2021 Citizen of the Year! 

Patrick, who is humbled by this honor stated, “I just want to help out in some small way in my community and do some clean up on my morning walk. My family and I have lived here for close to twenty five years. I love my community and the people who live here.”

Pat is no stranger to volunteering. He was a member of the Fredon Board of Education for ten years, a Fredon Soccer and Basketball coach for ten years, and a former board member of the United Way of Sussex County. Currently, Patrick continues to volunteer for the United Way of Northern New Jersey and is a member of the Knights of Columbus Don Bosco Council.

Pat and his wife Moira have raised their three adult children in Fredon. Pat can be reached at the Realty Executives Sparta Branch office at 973-729-7141.

One of the major story lines over the last year is how well the residential real estate market performed. One key metric in the spotlight is home price appreciation. According to the latest indices, home prices are skyrocketing this year.

Here are the latest percentages showing the year-over-year increase in home price appreciation:

• The House Price Index (HPI) from the Federal Housing Finance Agency (FHFA): 18.8%
• The S. National Home Price Index from S&P Case-Shiller: 18.6%
• The Home Price Insights Report from CoreLogic: 18%

The dramatic increases are seen at every price point and in all regions of the country.

Increases Are Across Every Price Point
According to the latest Home Price Index from CoreLogic, each price range is seeing at least a 19% increase year-over-year:

Increases Are Across Every Region in the Country
Every region in the country is experiencing at least a 14.9% increase in home price appreciation, according to the Federal Housing Finance Agency (FHFA):

Increases Are Across Each of the Top 20 Metros in the Country
According to the U.S. National Home Price Index from S&P Case-Shiller, every major metro is seeing at least a 13.3% growth in prices (see graph below):

What About Price Appreciation in 2022?
Prices are the result of the balance between supply and demand. The demand for single-family homes has been strong over the last 18 months. The supply of houses available for sale was near historic lows. However, there’s some good news on the supply side. Realtor.com reports:

“432,000 new listings hit the national housing market in August, an increase of 18,000 over last year.”

There will, however, still be a shortage of supply compared to demand in 2022. CoreLogic reveals:

“Given the widespread demand and considering the number of standalone homes built during the past decade, the single-family market is estimated to be undersupplied by 4.35 million units by 2022.”

Yet, most forecasts call for home price appreciation to moderate in 2022. The Home Price Expectation Survey, a survey of over 100 economists, investment strategists, and housing market analysts, calls for a 5.12% appreciation level next year. Here are the 2022 home appreciation forecasts from the four other major entities:

• The National Association of Realtors (NAR): 4.4%
• The Mortgage Bankers Association (MBA): 8.4%
• Fannie Mae: 5.1%
• Freddie Mac: 5.3%

Price appreciation is expected to slow in 2022 when compared to the record highs of 2021. However, it is still expected to be greater than the annual average of 4.1% over the last 25 years.

Bottom Line
If you owned a home over the past year, you’ve seen your household wealth grow substantially, and you’ll see another nice boost in 2022. If you’re thinking of buying, consider buying now as prices are forecast to continue increasing through at least next year.

Becoming financially secure is an important goal for many people today, but some don’t realize just how much homeownership can help them achieve that dream. A recent report, The Journey Toward Financial Freedom, surveys Americans about their perspective on financial wellness and their goals. It shows there may be a significant misconception about the role owning a home plays in building wealth:

“Home ownership is one of the indicators Americans say is least connected to financial health.”

Two major personal wealth goals – homeownership and net worth – work hand-in-hand. Below are just a few reasons why, if you’re looking for financial security, homeownership should be a top priority.

Homeownership Is an Important Cornerstone of Building Wealth
Every three years, the Federal Reserve releases the Survey of Consumer Finances which highlights the difference in wealth between homeowners and renters. The graph below shows the findings across the previous surveys including the latest data (2019), and the results are staggering:

As the graph illustrates, the gap between homeowners and renters continues to widen. That’s because homeownership contributes massively to an individual’s overall net worth. Odeta Kushi, Deputy Chief Economist at First American, highlights this idea:

“. . . between 2016 and 2019, housing wealth was the single biggest contributor to the increase in net worth across all income groups . . . .”

When we look even closer at the most recent data from 2019, the average homeowner’s net worth is more than 40 times greater than that of the average renter (see graph below):

The gap exists in large part because homeowners build equity as their home appreciates in value and they pay off a portion of their mortgage each month. When you own your home, your monthly mortgage payment is, in essence, forced savings that come back to you when you sell your home or refinance. As a renter, you’ll never see a return on the money you pay out in rent every month.

If you’re ready to start building your net worth, the current real estate market offers several opportunities you should consider. For example, with today’s low mortgage rates, your purchasing power may be higher now than it has been in some time. That means there may be no better time than now to start working towards your homeownership goals – especially since rates are anticipated to rise in the coming months.

Bottom Line
Owning a home provides one of the strongest foundations for building individual wealth and lasting financial security. If you’re ready to start your path towards homeownership, talk with our trusted real estate advisors today.