Building wealth through homeownership

April is “Fair Housing” month, and Spokane REALTORS® are ready to help open doors to the dream of homeownership. The primary reason Spokane families buy a home is for shelter and security. But homeownership is also an investment in your future. In America, the most common way to accumulate wealth is through homeownership. A family that owns their home will build wealth at a far greater rate than a family that rents. A U.S. Federal Reserve study has shown that the average homeowner’s net worth is 46 times the net worth of the average renter.

You may be asking, “How is that possible?” Three powerhouse concepts, leverage, land value, and your equity work hard for you over time, as you create lifelong memories in your home.

First, homeowners benefit from the power of leverage. Here is an easy-to-follow example of that incredible power:

Over 10 years, a $10,000 investment in the stock market at a normal 10 percent market rate of return would yield $23,600. The same investment as a down payment on a $200,000 home at 5 percent (Spokane’s average appreciation rate over the past 10 years) would return $110,300, nearly five times the stock market return.

The power of leverage is very attractive, but you might be wondering if buying a home right now is a smart financial decision. The fact is, homeownership is a key to building long-term wealth, no matter when someone buys, if they buy smart, borrow smart, and think long term. According to Ather Rizvi, a real estate expert with 20 years experience who writes, “there have been more millionaires made through real estate than through any other wealth building medium anywhere in the world.”

Rizvi goes on to explain another benefit, “the cost of land, which appreciates through time.” He writes, “You cannot build more land because there is a finite amount of it. As the demand for the land increases, so does its value. The world population is growing by leaps and bounds and people need places to live.” Locally, as cities like Spokane grow in population, land gets developed, and the infrastructure built around it raises the value of the land a great deal because of its increased utility. The location of the plot of land and the home situated on it also increase in value, due to demand.

Also, don’t overlook the significant impact of equity as the years go by. With a return to conservative lending guidelines in place once again, favorable loan terms often require a home buyer to put a minimum of 20 percent down to qualify. Because of that, most homeowners will steadily build substantial equity over time. According to a study by the U.S. Department of Housing and Urban Development, 60 percent of a homeowner’s wealth is from the equity they have built in their home.

For all these reasons, it is advisable to look beyond the initial challenges you may face (such as raising a down payment or paying down current debt to qualify for financing). Keep planning for your home purchase, and speak to a Spokane REALTOR® to discuss current, relevant housing data, in order to refine your plan.

Future homeowners who may be uncertain about their home buying plans are encouraged to learn more about options available to them, and the long-term benefits of owning a home. Any one of the over 2,000 professional members of the Spokane Association of REALTORS® stand ready to offer assistance and local housing market facts. To learn more, visit www.HousingMarketFacts.com and www.SpokaneRealtor.com today.