Record Housing Equity Gains

During the first five months of 2022, more than 110,000 individuals and families have purchased a home in the Mid-Atlantic region, setting down roots and building communities. There are many reasons homeownership continues to be an important part of the American Dream. One key benefit of homeownership is financial. Owning a home is the primary way in which Americans build wealth. Homeownership promotes financial stability. More than 70% percent of Americans said that buying a home is a good investment, a share that has remained relatively constant for years.

Is Buying a Home Still a Good Investment?

Middle-class families have accumulated $2.1 trillion in housing wealth over the past decade. As home prices have escalated and the market is showing signs of cooling, some people are wondering of buying a home is still a smart financial move. While the homebuying decision is ultimately unique to each household, there is solid evidence that over the mid-term and longer-term, homeownership remains a good investment and an important way to create wealth.

Over the first five months of 2022, the median sales price in the mid-Atlantic was $368,000. Five years ago, the typical home in the region sold for $260,000. If a family had purchased the typical home in 2017, five years later, that family would have accrued nearly $93,000 in housing equity. The profit accrued takes into account the out-of-pocket costs associated with buying and selling home, and also reflects changing interest rates.

There are even significant financial gains after just three years of homeownership. On average, across the mid-Atlantic, if a family purchased the median-priced home in 2019, they would have gained about $72,000 in equity by 2022.

Because home prices have risen very quickly over the past years, there have been notable equity gains in many markets even over the past year.

Where Have Equity Gains Been the Greatest?

In every local market across the Mid-Atlantic, homeowners have seen significant wealth gains through rising housing equity. For example, a homebuyer purchasing the median-priced home in the Philadelphia metro five years ago would have accumulated more than $85,000 in housing equity. The five-year equity gain was nearly $80,000 in the Baltimore metro and over $118,000 for buyers in the Washington metro.

There is variation across counties and cities; however, in every market, there have been significant increases in housing equity over the past three and five years. Five-year housing equity gains ranged from $60,200 in Arlington County, Virginia to $180,400 in Loudoun County, Virginia.

How Much Housing Wealth Have Home Buyers Accumulated?

*Calculations of housing equity gains assume homes were purchased with a 3.5% downpayment at the average 30-year fixed rate mortgage rate, with buyer closing costs totaling 1.5% of the purchase price and seller closing costs totaling 8.0% of the purchase price.

What is the Outlook for Housing Equity?

Even as market conditions begin to ease somewhat in the Mid-Atlantic, prices have hit record highs and many home buyers continue to face stiff competition. Even in this still-competitive market, buying a home to live in for five or more years will still typically be a positive financial move for individuals and families.

At the moment, when some other investments are looking riskier, investing in homeownership can feel like a safer move. However, it’s important to remember that it is not just about returns. Unlike other investments, a home is not just an asset, but it is also a place to put down roots, find community, build a family, and create memories.

To stay informed about housing market conditions, be sure to make use of Bright’s housing market reports and get a preview of future buyer activity by tracking the Bright MLS T3 Home Demand Index for the Philadelphia, Baltimore, and Washington DC regions.

 

---

Dr. Lisa Sturtevant serves Bright MLS as the nation’s only MLS-focused economist. She leads research, reporting and insights from Bright’s comprehensive array of real estate data. In 2021, Bright’s over 100,000 subscribers facilitated $142B in real estate transactions through its system stretching across 6 states and the District of Columbia.