While it’s true that this year presents special challenges for homebuyers, it’s crucial to consider the long-term advantages of homeownership when making your decision given the higher mortgage rates, inflationary pressures, and worries about a potential recession that exist today.
Think about it: It’s likely difficult to find someone who regrets buying a home if you know people who did so 5, 10, or even 30 years ago. The explanation is straightforward: As home values increase over time, your personal wealth also increases. This may be the reason why, according to a recent Fannie Mae survey, 70% of participants think purchasing a home is a secure investment. In other words, even though purchasing a home in 2021 may present some short-term difficulties, the possibility of long-term benefits is still very much present.
See how just the home price appreciation component can add up over time in the following example.
Home price growth over time
To illustrate just how notable price increases have been over the past five years, the map below uses data from the Federal Housing Finance Agency (FHFA). Additionally, the map is divided regionally to help illustrate broad market trends because home prices vary by region.
Home prices nationwide increased on average by just over 56% over a five-year period, as shown by the percent change in home prices.
In general, home prices increased significantly in a short period of time, although some regions are slightly above or below that average. Additionally, if you extend that time frame even further, the advantages of homeownership and the significant improvements that homeowners have made over the years become even more evident (see the map below):
According to the second map, home prices increased by an average of more than 290% nationwide over a period of about 30 years.
According to the national average, a homeowner who purchased a home 30 years ago could expect to see a nearly threefold increase in value. That’s a big reason why so many people who bought homes years ago are still content with their choice.
And even though there may have been rumors of a housing crash in late 2022, it never happened. Even though they have moderated from the record high reached during the so-called “unicorn” years, home prices are currently on the rise in many areas. This implies that your home should increase in value over the course of the following year in the majority of markets.
Renting is an option to buying a home, but rental costs have been rising for years. Consider purchasing a home instead of continuing to pay rent and deal with yearly rent increases that don’t provide any long-term financial benefit.
Despite the challenges posed by higher mortgage rates and inflationary pressures, buying a home can still be a smart investment. Home price appreciation, stability and security, tax benefits, and an inflation hedge are all compelling reasons to consider homeownership. While it’s important to carefully consider your financial situation and the current housing market, owning a home can provide a sense of pride and accomplishment knowing that you are building your own financial future.
