Think you’ve missed out on the opportunity to build housing wealth (otherwise known as home equity) over the next 5 years? Well, it’s time for you to think again!
Currently, there is over $90 TRILLION dollars in home equity in the U.S. In fact, according to ReverseMortgageDaily, U.S. home equity has continued to grow consistently – including by $726 Million in the third quarter of this year alone. This growth in equity has resulted in the percentage of homeowners with positive home equity growing to 93.7%. This is great news for current homeowners, but you haven’t missed the boat if you are thinking about buying you first home, dream home, upsizing or downsizing.
So on to the good stuff… Over the next five years, home prices are expected to appreciate 3.24% per year on average (within the range considered a “normal” market) and to grow by 21.4% cumulatively, according to Pulsenomics’ most recent Home Price Expectation Survey. If you remember from previous posts, this is a survey of 100 of the leading housing economics experts covering all sides of the market.
So, what does this mean for homeowners and their equity position? As an example, let’s assume a family purchases and closes on a $750,000 home in January. If we look at only the projected increase in the value of that home, how much equity will they earn over the next 5 years?
>>>>> $143,094 <<<<<
This is the potential growth in family wealth over the next 5 years based only on an increase in home equity due to price appreciation as projected by the Home Price Expectation survey. It doesn’t even take account monthly principal payments.
“Paydown of principal is the second key component of equity building,” according to CoreLogic CEO Anand Nallathambi. “Many homeowners have refinanced into shorter-term loans, such as a 15-year loan, and by doing so, they have significantly fewer mortgage payments and are able to build equity wealth faster.”
The bottom line? In many cases home wealth is the largest component of a family’s overall net worth. Whether you already own a home or not, the next 5 years present the ability to build additional equity you can borrow against in the future.