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Homeownership Is a Key to Building Wealth

November 10, 2020 By Tami Savage

Homeownership Is a Key to Building Wealth

For years, real estate has been considered the best investment you can make. A major reason for this is due to the net worth a household gains through homeownership. In fact, according to the 2019 Survey of Consumer Finance Data from the Federal Reserve, for the average homeowner:

“…a primary home accounts for 90% of the total wealth of a family in the U.S.”

How do homeowners gain wealth?

Most large purchases, like cars and appliances, depreciate in value as they age, so it’s understandable to question how owning a home can increase wealth over time. In a simple equation, the National Association of Realtors (NAR) explains how the combination of paying your mortgage and home price appreciation grow overall wealth:

Principal Payments + Price Appreciation Gains = Housing Wealth Gain

As home values increase and you make payments toward your home loan, you’ll gain wealth through equity. The same article from NAR also addresses how wealth gains tend to play out over time:

“Housing wealth accumulation takes time and is built up by paying off the mortgage debt and by price appreciation. And while home prices can fall, home prices tend to recover and go up over the longer term. As of September 2020, the median sales price of existing home sales was $311,800, a 35% gain since July 2006 when prices peaked at $230,000.”

Taking a look at how equity has grown for the typical homeowner, it’s clear to see how real estate is a sound long-term investment. NAR notes:

“Nationally, a person who purchased a typical home 30 years ago would have typically gained about $283,000 as of the second quarter of 2020.” (See graph below):

Equity Gains as of 2020 Q2 on a Typical Single-Family Existing Home (Purchased 5, 10, 15, or 30 years ago in the U.S.)  5 Year Wealth Gain $81,994. 10 Year Wealth Gain $144,490. 15 Year Wealth Gain $130,875. 30 Year Wealth Gain $283,022.  The calculations shows housing wealth gains acculated for a typical home purchased 5, 10, 15, or 30 years ago and sold at the median sales price as of 2020 Q2.  The calculation assumes a 30-year fixed-rate mortgage plus points, fees, and a 10% down payment.  The calculation is illustrative of the wealth gain from homeownership.  The actual home equity gains accrued over time will vary by property and will depend on home improvmements undertaken over time.  These home improvement costs are not taken into the calculation.  Source:  NAR

Bottom Line

Whether you’re a current homeowner planning to put your equity toward a new home or have hopes of buying your first home soon, homeownership will always be a great opportunity to build your net worth and overall wealth. Owning a home is truly an investment in your financial future.

Tagged With: For Buyers, For Sellers, Pricing, Rent vs Buy

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I help homeowners sell their existing home and shift into a home more suitable to their needs in the North Metro Atlanta area (specifically around Cumming, Canton, & Milton). Read More…

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