How Homeowners are Building Wealth in 2022

It’s no secret that homeownership contributes to wealth-building opportunities for owners. But how do you build wealth as a homeowner? Studies show that homeowners have up to 40-50 times more net worth than renters.

In September 2020, the Survey of Consumer Finances found that the median net worth for a U.S. household was $121,700. And in 2019, homeowners in the U.S. had a median net worth of $255,000 while renters had a net worth of just $6,300 – A difference of about 40 times.

Additionally, if you buy a home before age 35, you will earn more by the time you reach your sixties. The study from Urban Institute discovered that the median home equity was about $150,000 for those who bought their home at an earlier age.

There is a $72,000 difference in the median housing wealth of those who bought their first home between ages 25 and 34 and those who waited until they were 35 to 44. If they wait until they are 45 or older, the median wealth is more than $100,000 lower. – Urban Institute

Those ten years can make a big difference in home appreciation.

Securing a low interest rate means more of each monthly payment will go towards the principal rather than the interest on the loan. The paid mortgage increases equity in your investment (aka your home), which creates a credit-savings account, and you can borrow against it later. With a fixed-rate mortgages, you have a stable monthly payment versus increased rent costs.

Today, homeowners are looking to maximize their investment and home equity.

If you are planning to move in the next year, you can get creative in building upon your current home equity. You can use your equity towards a down payment on a new home. Then, turn the old house into a rental property. If it is within your financial means, why not keep the investment, have renters pay any remaining mortgage payments. Those payments turn into monthly rent collection. You earn a net profit, and you have a secondary investment that appreciates over time.

Homeowners who pay off their loans over time can live mortgages-free. The options to either downsize, rent, or buy a bigger home can bring in more wealth. The house, now an asset, can also be passed down to family members.

Most homes will appreciate, or continue to increase in value over time, which increases net worth. On average, home values have appreciated an average of 3.6 percent each year, according to the Federal Housing Finance Agency’s House Price Index (HPI). This year, home prices were up 19.2 percent from July 2020 to July 2021 nationwide. The surge is in response to the lack of supply and high demand. Home price appreciation is forecasted to become more moderate in 2022. Experts like mortgages Bankers Association (MBA) and Freddie Mac claim to see appreciation levels only grow between 4 to 8 percent.

Are you planning on becoming a homeowner? Are you looking to build more wealth as a homeowner next year? Contact us today. Let’s discuss how we can help.

This article is intended to be accurate, but the information is not guaranteed. Please reach out to us directly if you have any specific real estate or mortgage questions or would like help from a local professional. The article was written by Sparkling Marketing, Inc., with information from resources like Federal Reserve, Urban Institute, and CNBC.