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The Dramatic Impact of Homeownership on Net Worth

Author: Reid Realtors
Categories: Buying Myths,First Time Home Buyers,For Buyers,news,Rent vs. Buy

If you’re trying to decide whether to rent or buy a home this year, here’s a powerful insight that could give you the clarity and confidence you need to make your decision.

Every three years, the Federal Reserve releases the Survey of Consumer Finances (SCF), which compares net worth for homeowners and renters. The latest report shows the average homeowner’s net worth is almost 40X greater than a renter’s (see graph below):

One reason a wealth gap exists between renters and homeowners is because when you’re a homeowner, your equity grows as your home appreciates in value and you make your mortgage payment each month. When you own a home, your monthly mortgage payment acts like a form of forced savings, which eventually pays off when you decide to sell. As a renter, you’ll never see a financial return on the money you pay out in rent every month. Ksenia Potapov, Economist at First American, explains it like this:

“Renters don’t capture the wealth generated by house price appreciation, nor do they benefit from the equity gains generated by monthly mortgage payments . . .”

The Largest Part of Most Homeowner Net Worth Is Their Equity

Home equity does more to build the average household’s wealth than anything else. According to data from First American and the Federal Reserve, this holds true across different income levels (see graph below):

The blue segment in each bar represents how much of a homeowner’s net worth comes from their home equity. Based on this data, it’s clear no matter what your income level is, owning a home can really boost your wealth. Nicole Bachaud, Senior Economist at Zillow, shares:

“The biggest asset most people are ever going to own is a home. Homeownership is really that financial key that helps unlock stability and wealth preservation across generations.”

If you’re ready to start building your net worth, the current real estate market offers several opportunities you should consider. For example, with mortgage rates trending lower lately, your purchasing power may be higher now than it has been in months. And, with more inventory coming to the market, there are more options for you to consider. A local real estate agent can walk you through the opportunities you have today and guide you through the process of finding your ideal home.

Bottom Line

If you’re unsure about whether to rent or buy a home, keep in mind that owning a home can increase your overall wealth in the long run, no matter your income. To discover more about this and the many other benefits of homeownership, connect with a local real estate agent.

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How To Turn Homeownership into a Side Hustle

Author: Reid Realtors
Categories: Demographics,First Time Home Buyers,For Buyers,Move-Up Buyers,news,Rent vs. Buy

Does the rising cost of just about everything these days make your dream of owning your own home feel less within reach? According to Bankrate, many people are seeking additional income through side hustles, possibly to cope with those increasing expenses and save for a home. This trend is particularly popular with younger individuals who may be dealing with student loan debt (see graph below):

 

Here are two strategies that can not only make homeownership more affordable in the short term, but turn it into a lucrative side hustle that can pay off down the road.

Transforming the Challenge of a Fixer-Upper into an Opportunity

One thing you could do to help you break into homeownership is consider purchasing a fixer-upper. That’s a home that may be a bit less appealing and as a result has lingered on the market longer than normal. According to a recent article from U.S. News:

“The current state of the housing market may have you expanding your options to try to find a home that you can afford. A fixer-upper that needs some updating and a little love can feel like a welcome alternative to move-in ready houses that go off the market before you can even take a tour.”

By opting for a home that requires some work, you may see two big benefits. For starters, you may find it’s easier to find a home because you’re not looking for that perfect option. Plus, it may also help you enter the housing market at a lower price point. This strategy provides a more affordable way to become a homeowner while also offering the potential for future profits.

Yes, the home may need a little elbow grease, but investing time and effort into gradually enhancing your house not only makes it a home but also increases its future market value. So, while you enjoy the satisfaction of turning a house into a home, you’re also building equity that can be unlocked when it’s time to sell.

Renting Out a Portion of Your Home To Make It More Affordable

Another savvy strategy is to purchase a home with the upfront intention of renting out a portion of it. According to a recent press release from Zillow, renting out a part of their home is already very important for most young homebuyers (see graph below):

 

This approach serves a strong purpose. As Manny Garcia, Senior Population Scientist at Zillow, says:

“For those first-time buyers navigating the ‘side hustle culture,’ where a regular 9-to-5 might not quite cut it for homeownership dreams, rental income can step in to help . . .”

Basically, it can help you afford your monthly mortgage payments. So if you’re open to it, renting out a portion of your home not only helps with affordability, but it also positions you as an investor and turns your home into a source of income.

Bottom Line

In the face of today’s affordability challenges, both of these strategies offer more attainable paths to homeownership, especially for younger buyers. If you want to discuss these options and see how they might play out for you in your local market, connect with a trusted real estate agent.

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Why Homeowners Are Thankful They Own

Author: Reid Realtors
Categories: Buying Myths,First Time Home Buyers,For Buyers,news,Rent vs. Buy

Countless people have set out on the exciting journey of homeownership. Ask around and you’ll find the vast majority are thankful they took the leap and bought a home. But why? It’s because of the many emotional and lifestyle benefits that come with being a homeowner.

So, if you’re trying to decide if you want to rent or buy a home, here are just a few of the many benefits you could look forward to if you buy.

It’s a Safe Haven

Owning a home goes beyond just having a roof over your head. It provides a sense of security and safety. In fact, in a survey from Fannie Mae, respondents say “having a sense of privacy and security” is one of the top reasons homeownership is preferred to renting. And in a different Fannie Mae survey, “living in a place where you and your family feels safe” is another one of the top benefits of homeownership.

Your home is a place where you can truly relax and unwind. Knowing that you have a sanctuary to return to at the end of the day is a great source of comfort.

It’s a Canvas for Self-Expression

For many homeowners, their home is a reflection of who they are. The National Association of Realtors (NAR), says:

“The home is yours. You can decorate any way you want and choose the types of upgrades and new amenities that appeal to your lifestyle.”

From the color of the front door to the art hanging on the walls, every detail contributes to a unique expression of personal style. Put simply, owning a home gives you the freedom to make changes and improvements that resonate with your personality.

It Helps You Feel More Connected to the Community

Stability is another cornerstone of homeownership. The longer you stay put, the more emotionally connected you are to your community. For example, if your neighborhood does cook-outs, block parties, or other events, you’ll feel more engaged and probably build meaningful relationships with those around you. As NAR states:

“Remaining in one neighborhood for several years allows you and your family time to build long-lasting relationships within the community.”

The sense of community where you can make life-long friends helps give you more stability and predictability than you’d have if you move each time a rental lease renews.

Its Where Lifelong Memories Are Made

Not to mention, your home is where you’ll make many memories. It’s a backdrop for the stories of your life. Celebrating milestones, hosting gatherings, and building a treasure trove of special moments within the walls of your home is a heartwarming experience to be thankful for.

Bottom Line

As you start thinking about buying a home, remember why so many people are glad they did. Homeownership isn’t just a financial decision. It’s about having a stable place where you can make lasting memories. If you’re thinking of buying a home and want advice, talk with a trusted real estate agent.

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Homeowner Net Worth Has Skyrocketed

Author: Reid Realtors
Categories: Buying Myths,First Time Home Buyers,For Buyers,Housing Market Updates,Move-Up Buyers,news,Rent vs. Buy

If you’re weighing your options to decide whether it makes more sense to rent or buy a home today, here’s one key data point that could help you feel more confident in making your decision. Every three years, the Federal Reserve Board releases the Survey of Consumer Finances (SCF). That report covers the difference in net worth for both homeowners and renters. Spoiler alert: the gap between the two is significant.

The average homeowner’s net worth is almost 40X greater than a renter’s. And here’s the data to prove it (see graph below):

The Big Reason Homeowner Net Worth Is So High

In the previous version of that report, the net worth of the average homeowner was roughly $255,000 and that of the average renter was $6,300. But in the release that just came out this year, the gap widened as homeowner net worth climbed dramatically. As the Survey of Consumer Finances (SCF) report says:

“. . . the 2019-2022 growth in median net worth was the largest three-year increase over the history of the modern SCF, more than double the next-largest one on record.”

One of the biggest reasons homeowner net worth skyrocketed is home equity.

Over the last few years, known as the ‘unicorn’ years for housing, home prices went through the roof. That’s because there weren’t enough homes for sale, and there was a big influx of buyers rushing to buy them and take advantage of the then record-low mortgage rates. That imbalance of supply and demand pushed prices higher and higher. As a result, most homeowners who had a home during that time saw their equity grow a lot.

If you’re still in the middle of making your decision on whether to rent or buy, you may wonder if you missed the boat on the big net worth boost. But here’s what you need to realize. As a recent article in The Ascent explains:

“Whether your net worth increased in recent years or not, there are steps you can take to boost that number in the coming years. . . buying a home can be a great way to grow your net worth, since home values have a tendency to rise over time.”

Historically, home prices climb over time. Even now that mortgage rates are closer to 7-8%, prices are still rising in many areas of the country because supply is still low compared to demand. That’s why expert forecasts for the next few years call for ongoing appreciation – just at a pace that’s more typical for the housing market.

While it likely won’t be the record ramp-up that happened over the last few years, people who buy now should continue to grow equity in the years ahead. That means, if you’re ready and able to buy a home today, you’ll be making an investment that’ll help build your net worth in the long run.

As Jessica Lautz, Deputy Chief Economist at the National Association of Realtors (NAR), says:

“. . . when deciding to rent vs buy, one must calculate the total cost of homeownership (maintenance, utilities, commuting, etc.) and the total financial benefit. Based on new Fed data . . . the median net worth of homeowners was $396,200 vs renters at $10,400. There is no question about the wealth gains that homeownership provides.”

Bottom Line

If you’re on the fence about whether to rent or buy a home, remember that homeownership can give your net worth a big boost over time. If you want to learn more about this or the many other benefits of owning a home, connect with a local real estate agent.

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How Buying a Multi-Generational Home Helps with Affordability Today

Author: Reid Realtors
Categories: Demographics,First Time Home Buyers,For Buyers,Move-Up Buyers,news,Rent vs. Buy

In today’s world of rising housing costs, many buyers are looking for ways to still be able to buy a home. Some of them have found a solution in multi-generational living.

Multi-generational living is when two or more adult generations live together under one roof. This includes siblings, parents, or even grandparents. Here’s an in-depth look at why more buyers are choosing this option today, so you can see if it may be right for you too.

Reasons To Buy a Multi-Generational Home

According to a recent study by the National Association of Realtors (NAR), the top two reasons people are opting for multi-generational homes today have to do with affordability (see graph below):

Cost Savings: About 28% of first-time buyers and 11% of repeat buyers are deciding on a multi-generational home to save on costs. By pooling their resources, households can share the financial responsibilities like mortgage payments, utilities, property taxes, and maintenance, to make homeownership more affordable. This is especially helpful for first-time homebuyers who may be finding it tough to afford a home on their own in today’s market.

More Space: Another 28% of first-time buyers and 18% of repeat buyers are doing it because they want a larger home they couldn’t afford on their own. For some of the repeat buyers who listed this as a main motivator, it could be because they find themselves taking care of older parents while also welcoming back young adults who’ve returned to the nest. With everyone chipping in and combining their incomes, suddenly, that big dream home with more space is within reach. As the Triangle Business Journal explains:

“Choosing multi-gen living allows people to purchase a home much larger than they could afford on their own by leveraging the combined income, credit and a down payment of those that they will be occupying the home with.”

Lean on an Expert

If you’re interested in this too, partner with a local real estate agent. Finding the perfect multi-generational home isn’t as simple as shopping for a regular house. That’s because there are more people with even more opinions and needs that should be considered.

You’ve got to make sure everyone has their own space, find room for shared household time, and possibly even create adaptable areas for older relatives. It’s a puzzle, and the pieces need to fit just right. Your real estate agent has the expertise and local knowledge to help you find that home where everyone can be comfortable without breaking the bank. As MoneyGeek.com puts it:

“Having a good multigenerational property can improve the prospects of success when living with loved ones. A multigenerational home should fit the specific needs of most family members regardless of age or health. Speaking to a real-estate agent can help you gain clarity and locate a fit.”

Bottom Line

Buying a multi-generational home can be a smart way to tackle some of today’s affordability challenges. When you team up to share expenses, you can make your dream of homeownership more attainable. If this sounds like an option for you and your loved ones, connect with a local real estate agent to help you find a home that’s the perfect fit.

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The Difference Between Renting and Buying a Home [INFOGRAPHIC]

Author: Reid Realtors
Categories: Buying Myths,First Time Home Buyers,For Buyers,Infographics,Move-Up Buyers,news,Rent vs. Buy

Some Highlights

  • When deciding between buying a home or renting, think about these three important factors.
  • Buying a home means avoiding rising rents, owning a tangible and valuable asset, and growing your wealth over time.
  • If you’re ready to enjoy the advantages of owning a home, connect with a local real estate expert to discuss your options.
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Growing Your Net Worth with Homeownership

Author: Reid Realtors
Categories: Buying Myths,For Buyers,news,Rent vs. Buy

Take a moment to imagine where you want to be in a few years. You might be thinking about your job, money, wanting more stability, or goals you want to reach soon. Is homeownership a part of that vision? If it is, you should know owning a home has a whole lot of financial benefits.

One of the many reasons to buy a home is that it’s a great way to build wealth and gain financial stability. That’s because the value of most homes increases over time, which in turn grows your net worth. Here’s how home values are rising right now. According to Zillow:

“The total value of the U.S. housing market – the sum of Zillow’s estimated value for every U.S. home – is now slightly less than $52 trillion, which is $1.1 trillion higher than the previous peak reached last June.”

Basically, homeownership is a tremendous wealth-building tool. And with home values back on the rise across the nation, now might be a good time to consider if owning a home is something you want to reach for.

Here’s a look at some data to see how much owning a home can really make a difference in your life.

Household Net Worth Is Rising

Data shows that while those in the top 1% saw the most dramatic net worth increase, people from every single tax bracket have seen their wealth grow over the past few years (see graph below):

 

For many of those people, the rising value of their home plays a big part in that.

Owning a Home Helps You Achieve Financial Success

You can tell homeownership had a lot to do with that growth because there’s a significant net worth gap between homeowners and renters. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:

 “. . . homeownership is a catalyst for building wealth for people from all walks of life. A monthly mortgage payment is often considered a forced savings account that helps homeowners build a net worth about 40 times higher than that of a renter.”

The big reason why? Homeowner’s build equity. Home equity is the value of your home minus the amount you owe on your mortgage. And for most homeowners, that’s the largest contributor to their net worth. Here’s the data from First American to prove it (see graph below):

The blue portion of each bar represents housing as a portion of net worth – and it’s clearly a bigger contributor than other investments like stocks, gold, and cryptocurrencies. As you can see, across different income levels, homeownership does more to build the average household’s wealth than anything else.

Bottom Line

One of the biggest benefits of owning a home is that it can provide an avenue to grow your net worth. Connect with a local real estate professional so you can start investing in homeownership.

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Should Baby Boomers Buy or Rent After Selling Their Houses?

Author: Reid Realtors
Categories: Baby Boomers,Buying Myths,Demographics,For Buyers,news,Rent vs. Buy

Are you a baby boomer who’s lived in your current house for a long time and you’re ready for a change? If you’re thinking about selling your house, you have a lot to consider. Will you move to a different state or stay nearby? Is it time to downsize or do you want more space to accommodate your loved ones? But maybe the biggest consideration boils down to this – will you buy your next home or choose to rent instead?

That decision ultimately depends on your current situation and your future plans. Here are two important factors to help you decide what’s right for you.

Expect Rents to Keep Going Up

The graph below uses data from the Census to show how rents have been climbing steadily since 1988:Rents have been going up consistently over the long run. If you choose to rent, there’s a risk your rental payment will go up each time you renew your lease. Having a higher rental expense may not be something you want to deal with every year.

When you buy a home with a fixed-rate mortgage, it helps stabilize your monthly housing payment. This allows you to lock in your monthly payment for the duration of your home loan. That keeps your payments steady and predictable for the long haul. Freddie Mac sums it up like this:

“. . . homeowners with fixed-rate loans will see little to no change to their monthly housing cost over the life of their loan. You can be confident in knowing that your mortgage payments won’t change much in the long term, even when life’s other costs do.”

Owning Your Home Comes with Unique Benefits

According to AARP, buying your next home is a better long-term strategy than renting:

“Though each option has pros and cons, buying provides more pros, with a broader range of benefits.”

To help you choose what you’ll do after you sell, here are just a few of the benefits of homeownership that article covers:

  • Owning your home can help you save money for the future. Your home, and the equity you build as a homeowner, can provide generational wealth that could be passed on to loved ones, giving them a better life.
  • You might not have to pay a monthly mortgage payment at all. If you have enough equity to buy your next home outright, you wouldn’t have a monthly mortgage payment. While you might still need to cover property taxes or maintenance fees, not having to worry about a monthly mortgage payment could be a big relief.
  • Aging in place can be simpler. If your needs change, owning your home gives you the freedom to make renovations and updates that can make everyday life easier.

Bottom Line

If you’re a baby boomer who’s wondering whether you should buy or rent your next home, talk to a reliable real estate agent for advice. With rents going up and homeownership providing so many benefits, it may make sense to consider buying your next home.

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Owning Your Home Helps You Build Wealth

Author: Reid Realtors
Categories: Buying Myths,First Time Home Buyers,For Buyers,news,Rent vs. Buy

You may have heard some people say it’s better to rent than buy a home right now. But, even today, there are lots of good reasons to become a homeowner. One of them is that owning a home is typically viewed as a good long-term investment that helps your net worth grow over time.

Homeownership Builds Wealth Regardless of Income Level

You may be surprised to learn homeowners across various income levels have a much higher net worth than renters who make the same amount. Data from First American helps illustrate this point (see graph below):

What makes wealth so much higher for homeowners? A recent article from Realtor.com says:

“Homeownership has long been tied to building wealth—and for good reason. Instead of throwing rent money out the window each month, owning a home allows you to build home equity. And over time, equity can turn your mortgage debt into a sizeable asset.”

Basically, the wealth you accumulate when you own a home has a lot to do with equity. As a homeowner, equity is built up as you pay down your loan and as home prices appreciate over time. Mark Fleming, Chief Economist at First American, explains how this same benefit isn’t true for renters in a recent podcast:

“Renters as non-homeowners gain no wealth benefit as home prices rise. That wealth actually accrues to the landlord.”

Before you decide to sign another rental agreement, now is a good time to think about whether it would be better for you to buy a home instead. The best way to figure out what makes sense for you is to have a conversation with a real estate expert you trust. That professional can talk you through the benefits that come with owning to determine if that’s the right next step for you. 

Bottom Line

If you’re not sure whether to keep renting or to buy a home, know that owning a home, no matter how much money you make, can help build your wealth. Connect with a local real estate agent to get started on the path to homeownership.

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Why Homeownership Wins in the Long Run

Author: Reid Realtors
Categories: First Time Home Buyers,For Buyers,news,Pricing,Rent vs. Buy

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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