For years, real estate has been considered the best investment you can make. A major reason for this is due to the net worth a household gains through homeownership. In fact, according to the 2019 Survey of Consumer Finance Data from the Federal Reserve, for the average houszowner:
“…a primary home accounts for 90% of the total wealth of a family in the U.S.”
How do houszowners gain wealth? Most large purchases, like cars and appliances, depreciate in value as they age, so it’s understandable to question how owning a housz can increase wealth over time. In a simple equation, the National Association of Realtors (NAR) explains how the combination of paying your mortgage and housz price appreciation grow overall wealth:
Principal Payments + Price Appreciation Gains = Houszing Wealth Gain As your housz value increases and you make payments toward your housz loan, you’ll gain wealth through equity. The same article from NAR also addresses how wealth gains tend to play out over time:
“Houszing wealth accumulation takes time and is built up by paying off the mortgage debt and by price appreciation. And while housz prices can fall, housz prices tend to recover and go up over the longer term. As of September 2020, the median sales price of existing housz sales was $311,800, a 35% gain since July 2006 when prices peaked at $230,000.”
Taking a look at how equity has grown for the typical houszowner, it’s clear to see how real estate is a sound long-term investment. NAR notes:
“Nationally, a person who purchased a typical housz 30 years ago would have typically gained about $283,000 as of the second quarter of 2020.” (See graph below):
Bottom Line Whether you’re a current houszowner planning to put your equity toward a new housz or have hopes of buying your first housz soon, houszownership will always be a great opportunity to build your net worth and overall wealth. Owning a housz is truly an investment in your financial future.