Homeownership Can Build Wealth

In a day with get rich quick schemes, coaching, and online courses, many people may be confused how to actually build wealth. Well, for those who do not know how wealth is built, let us take a look at wealthy people. Up to 90% of millionaires own the same type of asset, and no it is not stocks. In fact, over 90% of millionaires own real estate of some kind, often times extending past their personal residence. This is exciting news if you are a current homeowner in the real estate market we have seen pre-and-post pandemic. Homeowners have increased their net worth through their home equity, all by just enjoying the benefits of being a homeowner. Many homeowners are building equity at record levels, leaving owners in a strong position. Here is how homeownership can build wealth, and why it already has for so many Americans.

Homeownership Gains

Here is how homeowners made money by living their lives and taking advantage of homeownership. It is a simple concept, but home values increased at historical rates, and look to continue that trend for a third year. Because of the supply of houses compared to the demand of buyers, home valuations are through the roof. And, lucky for homeowners, this trend will likely continue for months, if not years. Even with mortgage rates increasing and the Federal Reserve raising their interest rates, home buyer is still strong. In fact, even as mortgage rates increase by close to one percent this year alone, buyer demand is not being impacted. For homeowners, having a strong seller’s market, where buyer demand far exceeds homes for sale, leads to monetary gains. While most of these gains are on paper, there is possible ways to take advantage of your home equity increase.

So, for those who have not seen our previous blog, home prices are rising and there isn’t a slowdown in the near future. According to Chief Economist at CoreLogic:

“Home prices rose 18% during 2021 in the CoreLogic Home Price Index, the largest annual gain recorded in its 45-year history, generating a big increase in home equity wealth.

Homeownership Can Build Wealth Through Equity

That is a large gain on an asset that is typically worth a hundreds of thousands of dollars. In fact, on a $250,000 home, the average sale price from a few years ago, a homeowner would have increased their net worth by $45,000 in a year. This would still be lower than the average of $55,000 of gained equity on average in America. With the demand for homes at record highs, and supply at levels never seen before, homeowners should continue to reach higher a net worth.

In almost every major market, and in every state with enough data, home prices increased. Some markets saw increases of close to $100,000. This is due to the influx of buyers in these areas, as well as the easy access to money allowing more people to buy. Even with the cost of real estate, and everything else rising, homeowner’s pockets are safer. Because real estate is an inflation hedge since it locks in your monthly housing expense, homeowners are also not seeing their real income decreases as much.

How It Works

Rising home equity can help homeowners and potential sellers achieve some more of their goals. One big way rising equity helps a homeowner is when it comes time to buy their next home. Most homeowners see a large kickback to them at the closing table, almost certainly allowing them a chance to buy their next home easier. When selling your home that you gained equity on, you receive this money back to you at closing. This allows you to have a higher down payment on a bigger house, or allows you to buy your next house almost entirely in cash.