Is Homeownership the Greatest Way to Secure Your Financial Future? (Part 1 of 4)

First-time homebuyers tend to focus on two things: The price of the home they’re buying and the monthly payment. And it’s entirely understandable. Affordability is key when you’re buying your first place—or any place, for that matter. And it’s especially relevant considering rising home prices across the country.

But there’s something else to consider: The future value of the home. Equity growth is likely something you’ve at least thought about if you’re in the market for a home. After all, the idea of paying someone else’s mortgage payment interminably instead of building equity in your own place has probably been driving you crazy. But let’s dive in a little further.

Appreciation in a nutshell

“Appreciation, or the rising of home prices over time, is how the majority of wealth is built in real estate,” said Forbes. “This is the ‘home run’ you hear of when people make a large windfall of money. While prices fluctuate, over the long run real estate values have always gone up, always, and there is no reason to think that is going to change.”

That makes real estate one of the more stable long-term investments. A paper from economists at University of California-Davis, University of Bonn, and the Deutsche Bundesbank (the central bank of Germany) culled together “the annual returns of treasury bills, treasury bonds, equities, and residential housing from 1870 to 2015 for 16 now-rich countries such as the US, Germany, and Japan” to study the effects of different forms of investments. They found that, “in the average wealthy country, the annual return on housing during that period was just over 7% when adjusted for inflation, while the return on equities was just under 7%,” said Quartz. “At the same time, the risk associated with housing was far lower. By standard measures of uncertainty, housing was about half as risky as equities, and slightly less risky than bonds.”

This is, obviously, important to those who are purchasing real estate for strictly investment purposes. But it’s also something to keep in mind when buying real estate for personal use.

Bob Abner is a highly respected, top producing, full time, Realtor for over 30 years and is an expert in the Northern Kentucky real estate market. Give Bob a call at 859-760-1660 or email Bob at BAbner@huff.com