Don’t be impressed by the headlines reporting year-over-year housing numbers for the next several months (data covering March, April, May, and June). The data will most likely show eye-popping one-year increases. The financial benefits of buying a home as compared to renting one are always up for debate. However, one element of the equation is often ignored – the ability to build wealth as a homeowner.
While the year-over-year jumps will certainly be striking, consumers should take these numbers with a grain of salt, as the situation highlights a short-term quirk in the reporting of this data. The increases will essentially reflect two things: sharply lower housing numbers during last year’s virus-related market collapse and the subsequent strong rebound. This will result in what will appear to be unbelievable growth.
Let’s use single-family home sales as an example:
As the graph reveals, last spring’s buying market was anything but typical. Instead of sales increasing, they fell sharply due to stay-at-home orders that virtually shut the real estate industry down. This spring’s real estate market will bounce back with more normal seasonal sales increases. The percentage increase in sales will be astronomical – not because sales have skyrocketed, but instead because they will be compared to last year’s low numbers.
Most experts are calling for home prices to continue appreciating over the next several years. The most recent Home Price Expectation Survey, a survey of over one hundred economists, real estate experts, and investment and market strategists, expects home appreciation to increase as follows:
- 2021: 6%
- 2022: 4.5%
- 2023: 4%
- 2024: 3.6%
- 2025: 3.5%
Using their annual projections, the graph below shows the equity build-up a purchaser could earn, using a $350,000 home as an example:
A homeowner could increase their net worth by over $80,000 in five years. That’s an average of $16,000 annually. That number should be in any equation determining the financial benefits of owning a home compared to renting.
Bottom Line
There are likely to be some sensational headlines about real estate over the coming months. However, don’t be fooled. The actual story is that the real estate market is finally back to normal. Homeowners are going to make a substantial amount of money in home equity over the next five years. If you’re ready to buy a home, let’s connect so you can enjoy this great benefit as well.