Equity is the term we use that is commonly associated with homeownership, and it refers to the difference between the market value of a property and the amount of debt that is owed on it. Over the years, the concept of equity has undergone significant changes, with homeowners experiencing both positive and negative trends. Today, we’ll look at how home equity has changed over the years and how it’s growing for current and future homeowners.
A Brief History of Equity
One of the significant changes in equity for homeowners has been the shift in housing values. In the early 2000s, the housing market was booming, with home values increasing rapidly and trending toward instability. As a result, many homeowners experienced substantial gains in equity, which allowed them to borrow against the value of their homes or sell them for a profit. However, the housing market crash of 2008 resulted in a significant decline in home values, causing many homeowners to experience negative equity or owe more on their homes than they were worth.
Since then, the housing market has seen a steady recovery, with home values increasing gradually over the years. According to the National Association of Realtors, the median home price in the United States rose 14.6% from 2019 to 2020. This increase in home values has been a significant factor in the positive trend of equity growth for homeowners.
Another factor that has influenced equity growth for homeowners is the gradual reduction of mortgage debt. As homeowners make payments on their mortgages over time, their debt decreases, allowing them to build equity. Moreover, homeowners can accelerate their equity growth by making additional payments towards their mortgage principal or refinancing to a shorter-term loan with a lower interest rate.
Ways to Grow Your Equity
For prospective homebuyers, there are several strategies that can help them improve equity in their new home. One such strategy is to make a larger down payment when purchasing a home. By putting more money down, buyers can reduce their mortgage debt and build equity more quickly.
Additionally, buyers can choose to purchase a home in a neighborhood that is experiencing growth in home values. Researching the local real estate market and choosing a home in an area with strong appreciation rates can help ensure that the value of the home increases over time, thus increasing equity.
Another strategy for improving equity in a new home is to make improvements and renovate the property. By updating the home’s features and systems, buyers can increase its value, allowing them to build equity more quickly. Moreover, making energy-efficient upgrades, such as installing solar panels or upgrading to energy-efficient appliances, can help reduce utility costs, allowing homeowners to put more money towards their mortgage payments and build equity more quickly.
Finally, be wise about your home purchase. In the long term, few investments are as stable as owning real estate and while a home is certainly a long play, it’s one of the most reliable ways to build personal wealth. Understanding that today’s market very well could be tomorrow’s bargain can help paint a better picture of just how your home purchase fits into the grand scheme of your personal financial portfolio.