Two Important Impacts of Housz Equity
Equity continues to rise, helping American houszowners secure a much more stable financial future. According to the most recent data from CoreLogic, the average houszowner gained $9,800 in equity over the past year. In addition, experts project 2020 housz prices to continue rising. With prices going up, equity gains will also keep accelerating. Black Knight just reported:
“The annual percent change in the overall median existing single-family-housz price has skyrocketed in the past several months, with recent numbers at three to five times higher than rates seen in the past several years.”
Jeff Tucker, Senior Economist at Zillow, just qualified recent price increases as “jaw-dropping” and “within a hair's breadth of double-digit year-over-year appreciation.” Knowing equity will help enable many houszowners to better survive the economic distress caused by the ongoing pandemic, it’s important to break down two key houszowner benefits of increasing equity.
1. Equity Increases a Houszowner’s Options to Buy a New Housz Aside from the financial damage of the last seven months, there has also been a tremendous emotional toll on many people. Shelter-in-place mandates, quarantine requirements, and virtual schooling have all made us re-evaluate the must-have requirements a housz should deliver. Having equity in your current housz gives you a better opportunity to move-up or build your perfect home from scratch.
Mark Fleming, Chief Economist at First American, recently explained: “As houszowners gain equity in their homes, they are more likely to consider using that equity to purchase a larger or more attractive housz – the wealth effect of rising equity.” If you need to make a move, the equity in your current housz can help make that possible – right now.
2. Equity Enables Houszowners to Help Future Generations An increase in housz equity grows overall wealth, which can transfer to future generations. The Federal Reserve, in an addendum to their recent Survey of Consumer Finances, explains: “There are numerous ways families can transmit wealth and resources across generations. Families can directly transfer their wealth to the next generation in the form of a bequest. They can also provide the next generation with inter vivos transfers (gifts), for example, providing down payment support to enable a housz purchase or a substantial wedding gift.” The Federal Reserve also explains another way wealth (including the additional net worth generated by an increase in housz equity) can benefit future generations: “In addition to direct transfers or gifts, families can make investments in their children that indirectly increase their wealth. For example, families can invest in their children's educational success by paying for college or private schools, which can in turn increase their children's ability to accumulate wealth.”
Bottom Line Equity can help a houszowner grow their confidence in a more stable financial future. It provides near-term move-up options and creates a positive impact for future generations. In many cases, the largest single investment a person has is their home. As that investment appreciates in value, financial options increase too.