Today, let's explore how much your equity has grown through real estate by introducing two key factors that significantly impact property value.
How Long You've Lived in Your Home
The first important factor is how long you've owned your home. This refers to the average length of time a homeowner stays in a house. From 1985 to 2009, the average period homeowners stayed in a home was about six years. However, according to the National Association of Realtors (NAR), this period has been steadily increasing. The current average for homeowners is 10 years.
Here's why this matters: as home values increase and mortgage loans are repaid, your equity grows. The combination of 10 years of home price appreciation and all the loan repayments will amount to a significant sum. Therefore, homeowners who have lived in their homes for a long time are likely to have built considerable equity.
Home Price Appreciation
To illustrate the impact of home price appreciation on equity, let’s look at data from the Federal Housing Finance Agency (FHFA).
What this data shows is that, while home prices vary by region, the average homeowner who has owned their home for the past five years has seen their home value increase by approximately 60%. For those who have owned their homes for 30 years, the value has tripled.
In other words, if you purchased a home five years ago or earlier, regardless of your down payment, you’ve likely gained 60% of your home's value as equity, on average.
Conclusion
Building equity is, of course, crucial. Whether you’re considering downsizing, moving to your dream location, or relocating closer to friends or family, the value of this equity will play a major role in your decision-making process.
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