Here are some helpful highlights:
- Recently, the Federal Housing Finance Agency (FHFA) published their Quarterly Home Price Index for the end of 2018.
- The report compares both regional and statewide housing prices.
- The latest figures show that home values are rising, bringing homeowners boosts in equity. Homebuyers also have the chance to increase their net worth simply by owning a home and by purchasing before prices rise further.
Owning could increase wealth by $40,000 in 5 years
With the exception of living rent-free, you’re always going to be paying someone’s mortgage — yours or your landlord’s. But if you’re a homeowner, then just owning a house gives you an advantage. Homeownership is an automatic way to increase wealth without any extra effort. Some call it a “forced savings plan,” where your monthly mortgage allows you to build up your family’s net worth.
Paying your mortgage each month means you’re paying off part of the debt you took out to buy your house. So, every month that goes by, you own even more of your house. This is called home equity.
When home values rise — currently by an average of 5.73 percent across the U.S. — your home equity rises along with it.
Are you better off buying now or later? Use our Cost of Waiting Calculator and find out.
This puts homeowners in a prime position since residential housing prices are only expected to appreciate in the future. Pulsenomics’ quarterly Home Price Expectation Survey (HPES) polls 100 economists, market strategists, and real estate experts nationwide, asking how housing prices may increase within the next five years.
Recent numbers from their Q1 2019 Survey projected that housing prices should be 4.3 percent higher at the end of the year than in January 2019. Over the next five years, home values are expected to appreciate 3.21 percent a year on average.
Homeowners are going to see payoffs, and even homebuyers who purchase before prices increase can benefit. To give a quick example:*
- A $250,000 house purchased in January 2019 could see an appreciation of up to $292,617 by January 2024. This adds up to a home equity increase of more than $40,000 in just five years.
- A homeowner with a current home value of $400,000 in January 2019 may see an equity boost of up to $68,187 by January 2024.
- A homeowner with a home valued at $600,000 may see their equity increase by more than $100,000 in the next five years.
Just like homeowners, new homebuyers can use this “forced savings” to build up equity and cash out on it for home renovations, debt consolidation, school tuition, and weddings or vacations within a few years. Continuing to rent only allows a landlord to keep building their equity.
What will waiting cost you?
Buying before housing prices rise again is a smart way to save up for the future. According to a 2018 study conducted by Harvard’s Joint Center for Housing Studies on renters and homeowners over 65, homeowners have 47.5-times greater net worth than renters. Use our Cost of Waiting Calculator to see if you can benefit from buying sooner.
*”Want To Increase Your Family’s Wealth? Here’s How!” Keeping Current Matters, March 2019.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.