Homeownership still remains the American dream across our country. While living through a pandemic, many saw their dreams still come to fruition. Not only did millions of people become homeowners for the first time during the pandemic, many current and new homeowners gained wealth through homeownership. The wealth they gained was through a common real estate term: home equity. American’s across the country who own homes were positively rewarded for owning their residence.
The benefits of being a homeowner do not stop at just having a roof over your head. Many homeowners, whether first-time home buyers or longtime residents, have benefitted financially as well. The pandemic brought up asset prices, benefitting homeowners across the nation. As many buyers learned for the first time, real estate is a fantastic way to boost net worth. Because of the long-term stability of real estate, many homeowners saw their net worth increase. We are here to talk about why many homeowners added to their net worth just by living in their homes and paying their mortgages.
The main factor that contributed to the rise in net worth by homeowners over the past 18 months is simple: equity. For those who are unfamiliar with equity, Simplifying The Market has a wonderful definition. According to Simplifying the Market on September 30th, 2021, “Equity is the difference between what you owe on the home and its market value based on factors like price appreciation.”
What many homeowners do not realize is that equity can often times grow without noticing. This is especially true in a seller’s market, much like the one we have enjoyed over the past 18 months or so. The combination of sky rocketing asset prices, low interest rates, and all-time high demand has contributed to the increase in many American’s net worth. Low supply of housing due to demand has also led to the increase of prices as well.
According to research done by Homeowner Equity Insights Report, prices have gone up in 45 of 50 states. Some key takeaways from their research are: the average homeowner gained $51,000 in positive equity and saw a ~30% increase in homeowner equity in the past year. In Kentucky, homeowners saw about $20k in positive equity gains year-over-year.
What Home Equity
Means For You
For many homeowners who have been long-time residences, they own more equity than ever before. Many homeowners have more equity than they realize. Whether you live in Kentucky and saw a $20k gain, or Hawaii with upwards of $100k, homeowners across the nation benefitted. For those who have been in their homes for years, this is fantastic. However, for those first-time home buyers, this can be detrimental.
In the current seller’s market, prices have soared and contingencies lose houses. This can make it hard for the first-time home buyer to get a home. However, this should not discourage a new buyer. There still has never been a better time to buy a home. Homeownership should not be discouraged, and should be pushed instead of renting. While many think they cannot afford a home and renting is their only option, that is hardly the case. Realizing that home equity is an essential part of net worth building, this should invite more people to buy.
While owning a home has intrinsic and extrinsic values, it is hard to overlook the extrinsic benefits. In the seller’s market we are in today, the extrinsic benefits are often highlighted. Being able to gain equity in an investment that you get to live in is unmatched. A primary residence is a key to net worth building. In the current market today, most homeowners of 12+ months saw upwards of a 30% increase in home equity. In Kentucky specifically, homeowners saw a $20k bump to net worth. This is phenomenal, especially because this is money they did nothing besides live to accumulate.