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Should I own?

by Talya Keren 01/07/2021

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:The Importance of Home Equity in Building Wealth | MyKCMOnly 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:The Importance of Home Equity in Building Wealth | MyKCM

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:The Importance of Home Equity in Building Wealth | MyKCM

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.

 

 

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.
About the Author
Author

Talya Keren

Thank you for your interest in me. I am Talya, serving the NoVA area for years.

My focus is on putting together all of my experience, knowledge and resources to help you achieve your Real Estate goals, and to walk with you through an educated & smooth Real Estate transaction.

Looking forward to working with you.

Please take 2-3 minutes to read the recent reviews written by clients.

Ryan, November 2020: Talya is definitely hard-working and we greatly appreciate having her to speak on our behalf. She was committed to getting us in the home we wanted and that’s all anyone can ask for..."

Rafael, November 2020: Talya is definitely a life saver, making this whole process simple! I am glad to have contacted her, and had her guide me through this. She is always quick to respond and always ready to move on to the next step. She gave me her full attention and care, especially since I was new to all of this. She gave me all the necessary advice, and I know she will continue being there for me whenever I need a question answered. I worked with another gent before, who was not even close to the level of professionalism Talya has to offer. She is a definite recommendation to anyone."

Nancy, September 2020: “ Talya is an excellent Realtor... I am very happy with her service and will continue using Talya’s service in the future...

Bryant, August 2020: “Talya was excellent, always responded to requests quickly and was always available. She made the process very fun and easy. This was my first time buying and it could not have been more of a breeze.”

Ryan & Jill, July 2020: “Talya is a top-notch realtor, who embodies compassion, expertise, honesty, and consistent communication. The entire home buying experience has gone beyond our already high expectations. Our family has made a friend in this process and will continue to use Talya for years to come.”