Leveraging Your Home as a Potent Investment

Entering 2023, the air was thick with speculation about an impending recession that could potentially send the housing market into a tailspin. Some pundits went so far as to predict a significant plummet in home prices, with figures as alarming as 10-20% decline, likely leaving many prospective homebuyers feeling apprehensive.

However, reality had its own script: home prices surged beyond the ordinary. Brian D. Luke, Head of Commodities at S&P Dow Jones Indices, sheds light on the matter, stating, “Looking back at the year, 2023 appears to have exceeded average annual home price gains over the past 35 years.”

To contextualize last year's remarkable growth, consider the graph below, which utilizes data from Freddie Mac to illustrate the yearly fluctuations in home prices since 1980. The dotted line represents the long-term average for appreciation.

[Graph depicting home price appreciation over time]

The resounding message? Home prices exhibit an upward trajectory almost consistently. As articulated in a Forbes article, “. . . the U.S. real estate market has a long and reliable history of increasing in value over time.”

Since 1980, the only exception to this upward trend was during the housing market crash (highlighted in red in the graph above). Fortunately, the current market landscape is vastly different from that tumultuous period in 2008. Presently, there's a scarcity of available homes to meet the robust demand from buyers. Moreover, homeowners today possess substantial equity, placing them on much firmer ground compared to the precarious scenario of yesteryears. Consequently, the specter of mass foreclosures triggering price declines is significantly diminished.

The consistent appreciation of home values, with the exception of those tumultuous years, underscores the wisdom of investing in homeownership. By becoming a homeowner, you acquire an asset that tends to appreciate over time, thereby bolstering your net worth.

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4-29-2024