#1 Financial Benefit of Homeownership: Family Wealth

While growing up, we were taught by our parents and grandparents about the financial benefit of owning a home. Homeownership, they explained, is like a “forced savings plan.” When you pay rent, that money is lost forever. When you make a mortgage payment, much of that money accumulates as equity in the home. So, what exactly is equity?

The equity in your home is the amount of money you can sell it for minus what you still owe on the mortgage. Every month you make a mortgage payment. Every month a portion of what you pay reduces the amount you owe. That reduction of your mortgage every month increases your equity.

A recent study by CoreLogic explained that homeowners gained substantial equity over the last twelve months, and are essentially sitting on large sums of cash in their homes. In the study, Frank Nothaft, Chief Economist for CoreLogic explained:

“The CoreLogic Home Price Index recorded a quickening of home price gains during the fourth quarter of 2019, helping to boost home equity wealth. The average family with a mortgage had a $7,300 gain in home equity during the past year, and a total of $177,000 in home equity wealth.”

For most families, their home is their largest financial asset. This increase in equity drives the net worth, or family wealth, of the homeowner. Renters are not earning that financial benefit. Instead, they’re building the net worth of their landlord.

Bottom Line

Home price growth will moderate during the pandemic. Most experts agree that once the pandemic is over, home values will again begin to appreciate at levels similar to what we’ve seen over the last several years. In the long run, our family elders will be proven correct that homeownership is a financially savvy move.