It’s been a rough few years for the housing market, to say the least. We moved into our house in mid-2007. The price we paid was roughly 15% lower from what the previous owners had paid several years prior, so we thought we were getting a steal. Turns out the market had a lot further to fall.
Even though we put 20% down, we were precariously close to the point of being underwater by the time the bottom hit. We never quite hit there, but that shows that the total ‘loss’ in value on the house was over a third. That’s pretty staggering.
With all that, there were many pundits who became steadfast in their belief that renting was advantageous to owning a house. For the last few years it was hard to argue as they could point out that their payments were not going toward a declining asset, not to mention they were not responsible for the maintenance and upkeep that homeowners had to take to keep their property current.
It was hard to argue, but I still believed in my heart that owning a home was the right choice. At least for us. If nothing else, it gave us roots. It gave us something that was ours, that we could do what we wanted with and call our own. Yes, the bank owned it but the bank was never going to live there. We were. As time went on, I began to learn things about the home and care about things that I likely wouldn’t had I just been renting it.
Through all that, the monetary benefits of owning a home were on hold. But, lately, finally, they’ve began to show themselves.
And it reminds me that it’s a great time to be a homeowner.
Over the past nine months or so, Zillow has been reporting a positive uptick in the value of our house. Zillow is just one measure that I use to estimate the value of our house, but it is in line with what I’m seeing. I track the listings and sales in our neighborhood and surrounding neighborhoods, and the asking and selling prices have both been trending upward, while foreclosures in our immediate area have been cleared out.
Couple this with the fact that we owe less on our house with each mortgage payment, and the house has been the biggest contributor to our net worth increase since the uptick started.
Yes, even better than our 401(k) and investment accounts, which have done remarkably well over the same time.
One thing people often overlook when looking at how expensive a mortgage payment can be is that the portion of your payment that is applied toward principle stays with you in terms of net worth. This isn’t the case with a rent payment.
If you have a mortgage payment of $1,500 and you are splitting it evenly between principle and interest, then only $750 comes off your net worth each month. The other $750 stays with you. It just gets moved from your ‘cash’ assets to your ‘property’ assets.
What happens if you’re making a $1,500 rent payment? Every dollar is a reduction of your net worth.
When you’re a homeowner, any increase in value also goes into your pocket from a net worth perspective. Using the numbers above, say your house increases in value by $3,000 over the course of a year. That averages out to $250 per month. Combine that with your $750 ‘net worth’ transfer, and your property is increasing your net worth by roughly $1,000 per month total.
If you’re renting and that property value goes up, guess what you get?
Except another bill.
Now, we’re nowhere close to where we were even with our down payment. So, there will be those who will point to the tens of thousands of dollars we’re still ‘in the hole’ as justification for having been a renter.
But, I also know that even with a modest 2% increase in our home value as well as combined with the fact that every month will mean a bigger and bigger net worth transfer (as more of our payment is applied to principle), and I know we’ll catch up eventually.
It might take a few years, maybe even longer. Maybe more than ten.
But, you know what? That’s fine with me. If you’re a homeowner that’s doing it right, you’re in it for the long haul. That’s a commitment that homeowners make.
Besides, as I noted above, I don’t do it for the money. I don’t have any inclination of moving over the next few years, so the gain or losses are strictly on paper.
It’s just nice to know that those gains are finally happening in our favor.
Has the real estate crash scared you off or have you seen it as an opportunity to buy a home for your residence or as a rental?
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