Inflation is being felt in every sector of our economy right now and while the cost of living and basic necessities like gas and food continue to rise, wages are trailing behind. Some experts say we may be headed into a recession which will inevitably widen our wealth gap even further. One of the best ways to be on the winning side of this gap is through homeownership.
Homeownership has always been a primary tenant of the American Dream, fostering stability for families and a stronger sense of community. Homeownership remains the primary means of building wealth in the U.S. and is one of the most effective means of producing a generational financial legacy.
In 2015, the U.S. Census Bureau conducted a study with some shocking results. Homeowners’ median wealth was an astonishing 80 times higher than that of renters. The two biggest factors in the wealth gap were home equity and retirement accounts. Equity is the market value of assets after all debts have been paid off.
Buying a home is not without risks, and no investment is ever guaranteed. But history continues to prove that owning property leads to stable and significant returns. The speculative risk that is taken with stocks, crypto currency, NFTs, art and other investments typically do not apply with most real estate investments, particularly if you hold onto it long enough.
What makes homeownership such a remarkable wealth-builder?
1) It appreciates- On the lower end of the appreciation spectrum, homes average just around 4% annually, on the higher end (as we have experienced over the past couple of years), home values have soared to almost 30% in some locations. Obviously rapid growth like this is an anomaly, but it does happen.
2) It uses the principle of leverage- Equity accrues on not only your down payment amount and monthly mortgage payments, but the entire value of the home. If you put 10% down on a $300,000 home you earn appreciation on the total value of the house, not just your initial $30,000, as if you had personally invested all of that money yourself instead of borrowing from a bank.
3) It is forced savings- Comparable to a 401K or similar retirement plan which deducts money from your paychecks into outside investments, your monthly mortgage payments (especially if auto-debited) act in a related fashion. However instead of building equity through returns from the fluctuating stock market, you’re building equity through the more reliable real estate market. According to a recent analysis by the National Association of Realtors, the average homeowner accumulated $176,123 in home equity in a span of 10 years on a median-priced single-family home. Over 30 years, the wealth gain increased to $307,979.
June is National Homeownership Month. The real estate market is shifting and interest rates will probably continue to rise, but both of these may work to your benefit (referenced in my previous
articles). It is still a great time to build wealth and create a financial legacy for you and your family through homeownership.
If you have any questions or would like to take the next steps, reach out. We would love to help!
By Holly A. Morris, Realtor
The Meridian Real Estate Group