Author: Adrian Willanger

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.

Bottom Line

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.

There are different methods that home buyers may use to find a real estate agent to work with. While some may use the services of a real estate agent who they know personally, others may reach out to a professional who they have located online. Regardless of whether you previously knew the individual in a non-professional setting or not, it is important that you check your agent’s reference and testimonials before you get started with the home buying process. There are several good reasons for this.

The Importance Of Accessibility

Whether you are trying to find the perfect property and submit an offer before anyone else or you are actively negotiating with a seller, you need your real estate agent to be accessible to you. Simply because you are friends with the agent or they were friendly to you with the first phone call does not mean that they will continue to be accessible to you until you close on the home. References and testimonials can give you more information about this.

Professional Demeanor Throughout The Process

The right real estate agent is one who remains cool and composed throughout the transaction with all parties. Negotiations can become heated at times, and you want your real estate agent to have a professional demeanor under pressure. References and testimonials can give you first-hand insight about the agent’s demeanor.

Skilled With Negotiations

It is not enough to have a real estate agent represent you in negotiations. You also want the real estate agent to have some skills and a track record for success. You may not get everything you want with negotiations because of the need to compromise, but your real estate agent should be able to structure a deal that works well for you.

An Overall Great Experience

There will inevitably be times of stress and anxiety when you are buying a new property, and it is not reasonable to expect otherwise. However, a real estate agent should be by your side to facilitate the process, to explain concepts and to help you make better decisions from start to finish. When you read reviews and testimonials, pay attention to how satisfied the clients were with the overall process.

There are many factors to consider when selecting the right real estate agent to work with. While you want to have a great interactive dynamic with your real estate agent, you also need to focus on these factors to make the best decision possible. You can begin by contacting an agent today and requesting references from the professional.

Some Highlights

• The language of buying and selling a home may sound scary at first, but knowing how key terms relate to today’s market can help you. For example, current low mortgage rates and higher wages positively impact affordability for buyers, while home price appreciation continues to grow home equity, which sellers can use to fuel a move up.
• Terms like appraisal (what lenders rely on to validate a home’s value) and contingencies (which buyers can minimize to make their offer stand out) directly impact the transaction.
• You don’t need to be fluent in the language of the market to buy or sell. Instead, let’s connect today so that we can translate the process together.

REAL ESTATE-BROKER