April 22, 2024

Home ownership builds long-term wealth

Inflation has raised prices across the board since 2020, but no category squeezed American budgets like housing. With sky-high home prices and rents through the roof, non-homeowners face an increasingly tough choice.

The housing market has experienced a rollercoaster ride the past decade or so, after prices bottomed out in the early 2010s, home sales began a slow recovery toward normalcy. Low interest rates benefited homeowners, but low vacancy and slow multi-family building allowed landlords to increase rental charges.

Beginning in 2020, the pandemic prompted a reassessment of living situations, and with low interest rates, booming savings, and stimulus checks, homebuying surged. However, low supply and inflation led to soaring home prices – and rents.

When the Federal Reserve decided to raise baseline rates to fight overall inflation, mortgage rates quickly followed suit. Mortgage interest rates have more than doubled since January 2022, and while the pace of home price increases has slowed, the median home price rose 11% over the same span. As of November 2023, the typical monthly payment for a home in the U.S. is 22% higher than the typical monthly rent.

Viewed through a short-term lens, it’s understandable renting can seem so much less burdensome during periods of economic uncertainty, especially in high-cost markets. But the long-term benefits and intrinsic value of homeownership cannot be overlooked.

The truth is that homeownership builds equity and is the primary driver of foundational wealth. Each year of mortgage payments adds nearly $10,000 to a homeowner’s bottom line. With rent, you are putting money in someone else’s pocket.

Owning a home provides a sense of stability and permanence. It helps set up roots in a community, create a sense of belonging, and leaves a legacy for future generations. The emotional and psychological aspects transcend financial considerations and contribute to overall well-being and fulfillment.

Many renters may not understand mortgages fully. They may believe their current financial situation restricts them from getting a mortgage at all. They believe there are rigid home loan requirements. Rather than risking being told no, many don’t even try.

Education is the key to removing these obstacles. Don’t rule out buying a home because you think you’re ineligible. Armed with the right knowledge and guidance, you may be able to buy the home you’ve been thinking about.

Even against the backdrop of rising prices, waiting longer simply delays building more home equity over time. Bay Equity’s seasoned team of professionals has decades of combined expertise. Bay Equity loan officers have loan programs to help buyers qualify. We can guide you to multiple federal, state, and private programs designed to help. Call Bay Equity for a home loan conversation today.