Homeownership understood the assignment in 2021- $56k increase in equity!
The number one reason to buy real estate is because it's an appreciating asset..okay maybe second to that dream kitchen you’ve been eyeing 😉. Compared to the boats, the trailers, the cars….all depreciating. But real estate….appreciates year after year.
On average the home will appreciate 3% a year, that’s a pretty normal expectation. So let’s say (for ease) your home is worth $400,000 - which is actually the average price of a single family home in Billings proper right now. Your home is 400,000. 3% is 12,000. So on a normal scale your home should be worth 412000 at the end of the year, given you didn’t do a marilyn manson style reno (shhhh I know..you would never)
That’s pretty good right?
Get this.
Last year, the average homeowner gained $56,000 in equity……in one year.
Raise your hand if you would agree that they understood the assignment???
When you think of homeownership, it’s very likely that you first think of the non-financial benefits, safety, security, the backyard you can’t wait to host in, or being able to have that dog you bought in college that your parents said not to (just me??? 🤓)
But how often do we think of the financial gain that comes with owning property?
TBH not surprised, as you might be thinking about what this house is costing you at the closing table rather than what you could be gaining.
Well let me sprinkle a little love on those feelings and brighten your day.
Equity is defined as the current value of your home minus what you owe on the loan. As home values increase, your equity will too. That’s exactly what’s happening today. Inventory can’t keep up with buyers demand, so now there are bidding wars & multiple offers, appraisal waivers oh my. All of these variables drive prices up, and for the homeowner….so does the equity.
So if you were going to do quick math to determine your equity - you will need the following items:
Your current loan balance. Using the balance on your statement is fine here because we’re just looking for a rough estimate. If you were selling & ordering a payout, add one more monthly payment to your balance & that would be a more accurate payout.
Your current home value. Use this tool to get close. Home Evaluation Tool The best way to get exact numbers would be to contact your Realtor and get a market analysis done.
That’s it! Here’s the formula:
CURRENT HOME VALUE - YOUR LOAN BALANCE = EQUITY IN YOUR HOME
Simple simple simple.
As a homeowner, equity doesn’t only build your wealth it also opens doors to achieve other goals. That money could fuel your next move, it could be a down payment on another property, it can also be pulled out and used for home improvements - the opportunity is endless really!
Whether you’re a current homeowner or you’re ready to become one, it’s important to know how equity works and why it matters.
While the average homeowner saw an increase of $56k this year, Montana specifically saw an average of $68k according to REALTOR Magazine. Definitely the high middle of the country - with states like California, Hawaii & Washington hitting triple digits or getting fairly close. Yep…that’s right. California had the highest amount of equity gained during 2021, averaging $119k. But I thought they were all leaving?! 🥴 Turns out this truly is a nationwide market.
Home price growth hit the highest level in more than 40 years making this a record year for equity gain.
So what’s going to happen in 2022 - that is the magic question. Current trends aren’t showing any sign of a slow down. Experts are predicting another 5% increase in pricing on a nationwide level. Here’s what we know. These prices were built on strong equity. It will continue to rise as will interest rates which will balance it out. It will not reverse. I’m not about absolutes, but the data drives this notion. Our market is strong and it will continue on.
Again if you’re wanting to calculate how much money you made in your sleep last year, click here and get your rough estimate. I bet it makes you happy! 😉
