Housing Is More Than Equity

by Terry Aikin, CMB, AMP

With today’s mortgage headlines, it could be easy to fall into a doom-and-gloom perspective on the housing and mortgage finance industries. But that would be shortsighted. In spite of the negative headlines, it’s still a good time to buy a home for many because homeownership continues to provide many benefits, both tangible and intangible.?

Consider the financing options available today that were not available in the early days of mortgage financing. Consider the speed at which lenders can qualify a borrower and help them explore options when searching for their dream home or first home. Homeownership builds personal wealth through home equity, as shown by the accumulation of housing equity over every 10-year cycle since 1960.?The value of homeowner equity in the United States increased from approximately $8.77 trillion in 2010 to approximately $21.1 trillion in 2020, as published by Statista Research Department in April 2021.

?But housing is more than an opportunity to build wealth. It provides a sense of community and pride of ownership.?It’s stability for a family or a place to build a family. Buying a home is still part of the American Dream for many. The National Association of REALTORS? (NAR) and the Mortgage Bankers Association forecast 4.5 million new and existing home sales in 2023, and more than 4.5 million people will be shopping for a home this year.?

My father purchased his first house for $10,500 in 1963 with a down payment from the sale of his 1960 Corvair and an FHA loan with a 7% fixed interest rate. He purchased his second house in 1972 for $32,000 at a rate of 8% while only earning $30,000 a year as an autobody repair and paint guy. When he sold that second house in 2002 for $169,000, he transferred the accumulated wealth into an old lake house that had been in the family since 1952. He retired debt-free. The lake house is now worth more than $1,000,000, and it's free and clear. No mortgage payment. My father never finished the ninth grade but has since accumulated enough wealth through home equity to be considered a millionaire. He had always been wealthy when measured by any other standard, but now he is financially wealthy.?

This is not to say that every buyer today could replicate my father’s success. Many buyers face affordability and inventory issues. But while saving for a down payment and buying a home continues to be a challenge for many people, it also builds wealth over a lifetime. Homeownership helps create community and stability for a family. Focus on the positives of homeownership – and the solutions that can help people achieve it.?

Low-down-payment options exist to help would-be homeowners. Buyers don’t need 20% down to purchase a house, although the myth persists. The Federal Housing Administration (FHA) recently announced a reduction in mortgage insurance premiums, which will help many Americans that have higher debt-to-income ratios and/or less than perfect credit to save approximately $800 when buying a house. Private mortgage insurance is another option that many homebuyers use and today; premiums are significantly less than they were 20 years ago!?

Buying a house builds equity and wealth over a lifetime, but it’s more than wealth. It’s a home. It’s community. It’s stability for a family. Had my father delayed his leap of faith to purchase that house in 1972 at a rate of 8%, he may not be a millionaire today.?

Time will prove it's still a good time to buy a house and build a home.

note: the photo above is my father and mother with their great granddaughter.