Tami Savage, Realtor

Florida Real Estate

The Importance of Home Equity in Building Wealth

By Tami Savage

The Importance of Home Equity in Building Wealth

Homeownership has always been the first rung on the ladder leading to household wealth. As Freddie Mac recently posted:

“Homeownership has cemented its role as part of the American Dream, providing families with a place that is their own and an avenue for building wealth over time. This ‘wealth’ is built, in large part, through the creation of equity…Building equity through your monthly principal payments and appreciation is a critical part of homeownership that can help you create financial stability.”

Home equity is the difference between the current market value of your house and the amount you currently owe on your mortgage. To estimate your equity, subtract your mortgage balance from the market value of your home.

You can find what you owe on your mortgage by looking at your last monthly statement or by contacting your lender. If you need help determining the current market value of your home, contact a local real estate professional.

Is homeownership truly a better path to wealth than renting?

Some argue that renting eliminates the cost of property taxes and home repairs. Every potential renter must realize that all the expenses the landlord incurs (property taxes, repairs, insurance, etc.) are already baked into the rent payment – along with a profit margin. You don’t save money by renting.

As proof of this, First American broke down the net worth of homeowners and renters by income categories. Here are their findings:

Net Worth is Greater for Homeowners in All but One Income Category ... even after you subtract the equity in their home. Income Level less than $26k, owner total net worth is $103k, Equity in home $95k, Net worth without a home $8k, Renter Net worth $1k, Difference is $7k. Income Level $26k to 46k, owner total net worth is $140k, Equity in home $125k, Net worth without a home $15k, Renter Net worth $6k, Difference is $9k. Income Level $46k to 74k, owner total net worth is $190k, Equity in home $161k, Net worth without a home $29k, Renter Net worth $11k, Difference is $18k. Income Level $74k to 127k, owner total net worth is $261k, Equity in home $223k, Net worth without a home $38k, Renter Net worth $34k, Difference is $4k. Income Level $127k to 192k, owner total net worth is $433k, Equity in home $368k, Net worth without a home $65k, Renter Net worth $117k, Difference is $-52k. Income Level greater than $192k, owner total net worth is $1.66 Million, Equity in home $725k, Net worth without a home $937k, Renter Net worth $705k, Difference is $232k. Source: First American.

Only one income category ($127-192K) has a higher net worth for renters over homeowners. Every other category shows that being a homeowner leads to greater accumulated wealth.

According to the latest Homeowner Equity Insights Report from CoreLogic, the average homeowner gained $17,000 in equity in just the last year. Here’s a breakdown of the year-over-year equity gain by state:

Year Over Year Homeowner Equity Gains. In the U S we have had a year of year equity gain of $17,000. In Florida we have had a $14,000 gain year over year. As for the the other states: Alabama: $10,000. Alaska: $11,000. Arizona $28,000. Arkansas $9,000. California $34,000. Colorado $18,000. Connecticut $22,000. Delaware $12,000. Georgia $13,000. Hawaii $9,000. Idaho $29,000. Illinois $6,000. Indiana $15,000. Iowa $7,000. Kansas $16,000. Kentucky $10,000. Louisiana $12,000. Maine Insufficient Data. Maryland $16,000. Massachusetts $31,000. Michigan $10,000. Minnesota $15,000. Mississippi Insufficient Data. Missouri $15,000. Montana $22,000. Nebraska $13,000. Nevada $13,000. New Hampshire $27,000. New Jersey $21,000. New Mexico $20,000. New York $9,000. North Carolina $16,000. North Dakota $5,000. Ohio $13,000. Oklahoma $8,000. Oregon $23,000. Pennsylvania $12,000. Rhode Island $29,000. South Carolina $14,000. South Dakota Insufficient Data. Tennessee $15,000. Texas $8,000. Utah $26,000. Vermont Insufficient Data. Virginia $23,000. Washington $36,000. West Virginia Insufficient Data. Wisconsin $14,000. Wyoming $24,000. Source: CoreLogic

When can you cash in on your housing wealth?

Your home equity is part of your total wealth as a homeowner. The two most common ways homeowners can leverage their wealth are:

  • Selling
  • Refinancing

Selling: When you decide to sell your home, the equity you’ve built over time will come back to you in the sale. For example, if you paid off your $200,000 mortgage and sold your home for $350,000, you would receive $150,000 after closing.

Refinancing: You can refinance your current mortgage and take out some of the equity you have accumulated. With today’s historically low mortgage rates, you may be able to take out substantial cash and keep your monthly payment the same. Thankfully, homeowners today are doing this responsibly and not repeating the same mistakes made in 2006-2008 when some cashed out their entire equity to purchase luxury items like new cars, lavish vacations, etc.

How can these options help homeowners?

During these difficult times, many households are struggling with their housing expenses. Homeowners, because of their equity, have better alternatives. Odeta Kushi, Deputy Chief Economist at First American, recently explained that homeowners financially impacted by the pandemic will not necessarily be faced with foreclosure:

“The foreclosure process is based on two steps. First, the homeowner suffers an adverse economic shock…leading to the homeowner becoming delinquent on their mortgage. However, delinquency by itself is not enough to send a mortgage into foreclosure. With enough equity, a homeowner has the option of selling their home, or tapping into their equity through a refinance, to help weather the economic shock.”

What might the future bring?

Most experts are calling for home prices to continue appreciating going forward. The Home Price Expectation Survey, a survey of a national panel of over one hundred economists, real estate experts, and investment & market strategists, indicates appreciation will continue for at least the next five years. Using their annual projections, the graph below shows the equity build-up a purchaser would potentially earn by buying a $300,000 home this January:

$54,221 potential growth in household wealth over the next five years based solely on increased home equity if you purchase a $300k home in January 2021. Based on price appreciation projected by the Home Price Expectation Survey 2021 espected $300,000; 2022 expected $313,200; 2023 expected $324,162; 2024 expected $333,887; 2025 expected $343,903; 2026 expected $354,221. Source: Home Price Expectation Survey 2020 4Q

Bottom Line

Home equity, for most Americans, is the quickest way to build household wealth. That wealth gives homeowners more options during good times and in difficult situations.

Turning a House into a Happy Home

By Tami Savage

Turning a House into a Happy Home

We talk a lot about why it makes financial sense to buy a home, but more often than not, we’re drawn to the emotional reasons for homeownership.

No matter the living space, the feeling of a home means different things to different people. Whether it’s a certain scent or a favorite chair, the feel-good connections to our own homes are typically more important to us than the financial ones. Here are some of the reasons why.

1. Owning your home is an accomplishment worth celebrating

You’ve likely worked very hard to achieve this dream, and whether it’s your first home or your fifth, congratulations are in order for this milestone. You’ve earned it.

2. There’s no place like home

Owning your own home offers not only safety and security but also a comfortable place where you can simply relax and kick-back after a long day. Sometimes, that’s just what we need to feel recharged and truly content.

3. You can find more space to meet your needs

Whether you want more room in your home for your changing lifestyle (think: working from home, virtual school, or a personal gym), or you simply prefer to have a large backyard for socially-distant entertaining, you can invest in a location that truly works for your evolving needs.

4. You have control over renovations, updates, and your style

Looking to try one of those complicated wall treatments you saw on Pinterest? Tired of paying an additional pet deposit for your apartment building? Maybe you want to finally adopt that fur-baby puppy or kitten you’ve been hoping for. You can do all of these things in your own home.

Bottom Line

Whether you’re a first-time homebuyer or a move-up buyer who wants to start a new chapter in your life, now is a great time to reflect on the intangible factors that turn a house into a happy home.

The Difference a Year Makes for Homeownership

By Tami Savage

The Difference a Year Makes for Homeownership

Over the past year, mortgage rates have fallen more than a full percentage point, hitting a new historic low 15 times. This is a great driver for homeownership, as today’s low rates provide consumers with some significant benefits. Here’s a look at three of them.

1. Move-up or Downsize: One option is to consider moving into a new home, putting the equity you’ve likely gained in your current house toward a down payment on a new one that better meets your needs – something that’s truly a perfect fit, especially if your lifestyle has changed this year.

2. Become a First-Time Homebuyer: There are many financial and non-financial benefits to owning a home, and the most important thing is to first decide when the time is right for you. You have to determine that on your own, but know that now is a great time to buy if you’re considering it. Just take a look at the cost of renting vs. buying.

3. Refinance: If you already own a home, you may decide you’re going to refinance. It’s one way to lock in a lower monthly payment and save more over time. However, it also means paying upfront closing costs, too. If you want to take this route, you have to answer the question: Should I refinance my home?

Why 2020 Was a Great Year for Homeownership

Last year, the average mortgage rate was 3.93% (substantially higher than it is today). If you waited for a better time to make a move, market conditions have improved significantly. Today’s low mortgage rates are a huge perk for buyers, so it’s a great time to get more for your money and consider a new home.

The chart below shows how much you would save per month based on today’s rates compared to what you would have paid if you purchased a home exactly one year ago, depending on how much you finance:

Monthly Payment Savings. Using a 3.93% average rate (2019) vs 2.67% (current). Principal and Interest Payments rounded to the nearest dollar. Loan of 200k would result in a $139 per month savings. 300k would result in $208 monthly savings. 400k would result in $278 monthly savings. 500k would result in $347 monthly savings. 600k would result in $416 monthly savings. 700k would result in $486 monthly savings.

Bottom Line

If you’ve been waiting since last year to make your move into homeownership or to find a house that better meets your needs, today’s low mortgage rates may be just what you need to get the process going. Let’s connect today to discuss how you may benefit from the current rates.

Homeownership Is a Key to Building Wealth

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.

Rent vs. Buy: How to Decide What’s Best for You

By Tami Savage

Rent vs. Buy: How to Decide What’s Best for You

According to the U.S. Census Bureau, median rent continues to rise. With today’s low mortgage rates, there’s great opportunity for current renters to make a move into homeownership that stretches each dollar a little bit further.

While the best timeline to buy a home is different for everyone, the question remains: Should I continue renting or is it time for me to buy? The answer depends on your current situation and your future plans, so here are some thoughts to help you decide if you’re ready to own a home of your own.

1. Rent Will Continue to Increase

This is one of the top reasons why renters decide to move because in most cases, rent will continue increasing each year. As noted above, the U.S. Census Bureau recently released its quarterly homeownership report, and as the graph below shows, median rent is climbing year after year. When you own a home, you’ll lock in your monthly payment for the life of your loan, creating consistency and predictability in your payments.

Median Asking Rent since 1988 is at it's highest point in 2020. Source: Census

2. Freedom to Customize

This is a big decision-making point for many people who want to be able to paint, renovate, and make home upgrades. In many cases, landlords determine all of these selections and prefer you do not alter them as a renter. As a homeowner, you have the freedom to decorate and personalize your home to truly make it your own.

3. Privacy

When renting, your landlord has access to your space in case of an emergency. If you own your home, however, you’re the one to decide who can come inside. Given today’s health concerns around the pandemic, this may be a growing priority for you.

4. Flexibility for Relocation

If you’re renting, it may be easier to move quickly should you have a job transfer or simply decide it’s time for a change. When you’re a homeowner and need to sell your house, this might take a little more time. Today, however, with the housing market’s low inventory, this may no longer be the case. Homes are selling at a record-breaking pace, so you may have more flexibility than you think.

5. Building Equity

When you pay your rent, your landlord earns the equity the property gains. If you own your home, the benefits of your investment go directly toward your net worth. This is savings you’ll be able to use in the future for things like sending children to college, starting a new business, buying a bigger home, or simply downsizing to save for retirement.

6. Tax Advantages

When you own your home, there are additional that work in your favor as well. You can deduct things like your property taxes and mortgage interest (Always make sure you check with your accountant to see which tax-deductible benefits apply to your situation). When you rent, however, the tax benefits are directed to your landlord.

Bottom Line

It’s up to you to decide if you’d prefer to rent or buy, and it’s different for every person. If you’d like to learn more about the pros and cons of each, as well as resources to help you along the way, let’s connect to discuss your options. This way, you can make a confident and informed decision with a trusted expert on your side.

A Homeowner’s Net Worth Is 40x Greater Than a Renter’s

By Tami Savage

A Homeowner’s Net Worth Is 40x Greater Than a Renter’s

One of the best ways to build your family’s financial future is through homeownership. Recent data from the Federal Reserve indicates the net worth of a homeowner is actually over 40 times greater than that of a renter. Maybe it’s time to start thinking about buying a home, especially when they’re so affordable in today’s market.

Every three years the Survey of Consumer Finances shows the breakdown of how owning a home helps build financial security. In the graph below, we see that the average net worth of homeowners continues to grow, while the net worth of renters tends to hold fairly steady and be significantly lower than that of homeowners. The gap between owning and renting just keeps getting wider over time, making homeownership more and more desirable for those who are ready.

creasing Gap in Family Wealth. in 2010 the Renter was at $6,010 and the homeowner was at $203,850 with a $198k difference. In 2013 the renter wa at $5,930 and the owner was at $214,690 with a difference of $209k. In 2016 the renter was at $5,320 and the owner was at $246,130 with a difference of $241k. And in 2019 the renter was at $6,270 and the owner was at $254,900 with a difference of $249k. The different in a decade is $51k. Source: Federal Reserve

Owning a home is a great way to build family wealth.

For many families, homeownership serves as a form of ‘forced savings.’ Every time you pay your mortgage, you’re contributing to your net worth by increasing the equity you have in your home (See chart below):

Homeowners have 40x greater net worth than renters. Homeowner $120,000 home and $135,000 of other assets for a total of $255,000. The renter only has OTHER assets, listed in this graphic as $6,300. Source: Federal Reserve

The impact of home equity is part of why Gallup reports that Americans picked real estate as the best long-term investment for the seventh year in a row. According to this year’s survey, 35% of Americans chose real estate over stocks, savings accounts, gold, and bonds.

Today, there are great opportunities available for those planning to buy a home. The housing market has made a full recovery, and all-time low interest rates are giving homebuyers a big boost in purchasing power. If you’re ready, buying a home this fall can set you up to increase your net worth and create a safety net for your family’s future.

Bottom Line

To learn how you can use your monthly housing cost to build your family’s net worth, let’s connect so you have a trusted professional to guide you through the homebuying process.

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