Homeownership is seen as the largest source of wealth among families, with the median value of a primary residence worth nearly 10 times the median value of financial assets held by families.
A recent Economists' Outlook blog posted by Scholastica (Gay) Cororaton, Research Economist for the National Association of Realtors (NAR), on NAR.com, found that at the national level, homeowners who purchased a single-family existing home 10 years ago have gained an average of $225,000 in home equity if the home was sold at the median sales price of $363,100 in Q3 of 2021. These gains in home equity come from paying down the mortgage and from appreciation in home prices.
According to compounded annual growth rates, some 86% of the gains come from price appreciation of $193,600, and principal payments totaling $31,300. Over a 10-year period, home prices have increased 7.9% annually, a stronger appreciation compared to the 4.2% annual price pace in the past 30 years.
The past five years have seen increasingly rapid price appreciation. Nationally, median single-family existing-home sales rose 8.5% annually from 2016 Q3 through 2021 Q3. A homeowner who purchased a typical home five years ago would have accumulated $144,400 in home equity, of which $121,800 resulted from price appreciation, or 84% of total home equity gains.
Over a 30-year period, a homeowner who purchased a typical single-family home would likely have accumulated $354,400 in home equity, with $258,700 in housing wealth home price gains accounting for approximately three-quarters of the gain, with the typical existing-home sales price increasing by 4.2% annually.
In 15 metro areas—14 of which are in the Western U.S., homeowners likely accumulated enough home equity to purchase a single-family existing home at the current price of $363,100. The home equity accumulated from these markets means that homeowners in these markets have the ability to use the home equity to purchase a primary, vacation, or second home for cash, or make a sizable down payment on their purchases in metro areas where the price of a home is less than the total home equity.
As home prices tend to appreciate over time and due to principal payments, wealth grows as well. Over a 30-year period when single-family home prices rose at an annual pace of 4.2%, home equity gains were at least $500,000 in 23 metro areas, 15 of which are in the West region.
In four West region metro areas, the gains are over $1 million in:
- San Jose-Sunnyvale-Santa Clara, California ($1.6 million)
- San Francisco-Oakland-Hayward, California ($1.3 million)
- Anaheim-Santa Ana-Irvine, California ($1.1 million)
- Urban Honolulu, Hawaii ($1 million)
Rising home values benefit existing homeowners, but home prices need to rise in line with income growth so homes remain affordable and more households are able to reap the benefits of homeownership. Among 182 metro areas, prices over a five-year period rose faster than wages in 97% of other areas.
Click here to read more on NAR's Economists' Outlook.