Homeownership Helps Protect You from Inflation [INFOGRAPHIC]

Homeownership Helps Protect You from Inflation Some Highlights Wondering if it makes sense to buy a home today even when inflation is high? When other costs go up due to inflation, buying a home helps you keep your monthly housing expense steady. Rents typically increase with inflation. Maybe that’s why, according to a recent survey, 65.1% of landlords say they plan to raise the rent of at least one of their properties within the next 12 months. Especially when inflation is up, having a stable housing payment can be helpful. Connect with a local real estate agent so you can learn more and start your journey to owning a home today.

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Why Homeownership Wins in the Long Run

Today’s higher mortgage rates, inflationary pressures, and concerns about a potential recession have some people questioning: should I still buy a home this year? While it’s true this year has unique challenges for homebuyers, it’s important to think about the long-term benefits of homeownership when making your decision. Consider this: if you know people who bought a home 5, 10, or even 30 years ago, you’re probably going to have a hard time finding someone who regrets their decision. Why is that? The reason is tied to how home values grow with time and how, by extension, that grows your own wealth. That may be why, in a recent Fannie Mae survey, 70% of respondents say they believe buying a home is a safe investment. Here’s a look at how just the home price appreciation piece can really add up over the years. Home Price Growth over Time The map below uses data from the Federal Housing Finance Agency (FHFA) to show just how noteworthy price gains have been over the last five years. And, since home prices vary by area, the map is broken out regionally to help convey larger market trends. If you look at the percent change in home prices, you can see home prices grew on average by just over 56% nationwide over a five-year period. Some regions are slightly above or below that average, but overall, home prices gained solid ground in a short time. And if you expand that time frame even more, the benefit of homeownership and the drastic gains homeowners made over the years become even clearer (see map below): The second map shows, nationwide, home prices appreciated by an average of over 290% over a roughly 30-year span.  This nationwide average tells you the typical homeowner who bought a house 30 years ago saw their home almost triple in value over that time. That’s a key factor in why so many homeowners who bought their homes years ago are still happy with their decision. And while you may have heard talk in late 2022 that home prices would crash, it didn’t happen. Even though home prices have moderated from the record peak we saw during the ‘unicorn’ years, prices are already rebounding in many areas today. That means, in most markets, your home should grow in value over the next year. The alternative to buying a home is renting, and rental prices have been climbing for decades. So why rent and deal with annual lease hikes for no long-term financial benefit? Instead, consider buying a home. Bottom Line If you’re questioning if it still makes sense to buy a home today, remember the incredible long-term benefits of homeownership. If you’re ready to start the conversation, reach out to a real estate professional today.

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A Drop in Equity Doesn’t Mean Low Equity

You may see media coverage talking about a drop in homeowner equity. What’s important to understand is that equity is tied closely to home values. So, when home prices appreciate, you can expect equity to grow. And when home prices decline, equity does too. Here’s how this has played out recently.  Home prices rose rapidly during the ‘unicorn’ years. That gave homeowners a considerable equity boost. But those ‘unicorn’ years couldn’t last forever. The market had to moderate at some point, and that’s what we saw last fall and winter.  As home prices dropped slightly in the back half of 2022, equity was impacted. Based on the most recent report from CoreLogic, there was a 0.7% dip in homeowner equity over the last year. However, the headlines reporting on that change aren’t painting the whole picture. The reality is, while home price depreciation during the second half of last year caused equity to drop, the data shows homeowners still have near record amounts of equity.  The graph below helps illustrate this point by looking at the total amount of tappable equity in this country going all the way back to 2005. Tappable equity is the amount of equity available for homeowners to access before hitting a maximum 80% loan-to-value ratio (LTV). As the data shows, there was a significant equity boost during the ‘unicorn’ years as home prices rapidly appreciated (see the pink in the graph below). But here’s what’s key to realize – even though there’s been a small dip, total homeowner equity is still much higher than it was before the ‘unicorn’ years. And there’s more good news. Recent home price reports show the worst home price declines are behind us, and prices have started to go up again. As Selma Hepp, Chief Economist at CoreLogic, explains: “Home equity trends closely follow home price changes. As a result, while the average amount of equity declined from a year ago, it increased from the fourth quarter of 2022, as monthly home prices growth accelerated in early 2023.”  The last part of that quote is particularly important and is the piece of the puzzle the news is leaving out. To further emphasize the positive turn we’re already seeing, experts say home prices are forecast to appreciate at a more normal rate over the next year. In the same report, Hepp puts it this way: “The average U.S. homeowner now has more than $274,000 in equity – up significantly from $182,000 before the pandemic. Also, while homeowners in some areas of the country who bought a property last spring have no equity as a result of price losses, forecasted home price appreciation over the next year should help many borrowers regain some of that lost equity.” And even though Odeta Kushi, Deputy Chief Economist at First American, references a slightly different number, Kushi further validates the fact that homeowners have a lot of equity right now:  “Homeowners today have an average of $302,000 in equity in their homes.” That means if you’ve owned your home for a few years, you likely still have way more equity than you did before the ‘unicorn’ years. And if you’ve owned your home for a year or less, the forecast for more typical price appreciation over the next year should mean your equity is already on the way back up. Bottom Line Context is everything when looking at headlines. While homeowner equity dropped some from last year, it’s still near all-time highs. Reach out to a trusted real estate professional so you can get the answers you deserve from an expert who’s there to help as you plan your move this year.

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