Who wouldn’t want to trade off their jobs for an option where their long-term investment, in this case, a home, works to earn the homeowner the same amount of money? According to an analysis by Zillow, the rapid pace of home value appreciation in many of the country’s large markets could present homeowners with this interesting dilemma.
The analysis found that a typical U.S. home appreciated by 7.6 percent last year from a median value of $195,400 in February 2017 to $210,200 by the end of February 2018. This increase in value meant a gain in home equity of $7.09 for every hour that the average U.S. homeowner was at the office last year, and translated to a little less than the federal minimum wage of $7.25 per hour.
Using these numbers as the base, the analysis found that while owners of the median-valued homes in 24 of U.S.’ 50 largest cities earned more equity per hour last year than the local minimum wage in those cities. In some cases, homeowners made much better in home equity than they would in hourly wages.
The analysis found that in New York, San Diego, San Jose, San Francisco, Seattle, and Oakland, owners of the median-valued local home gained more than the median household earnings of around $60,000 per year, in home equity alone.
“In San Jose, the heart of Silicon Valley where the median home value has soared above $1 million over the past year, owners of the typical local home earned more than $200,000 in equity last year – almost $100 for every hour spent at the office last year,” the analysis said.
While these numbers might be tempting for many homeowners to give up their day jobs, there’s a catch, the analysis found.
“Equity ‘earnings’ are a lot different than the salary typically taken home on the first and fifteenth of each month; it is not money that accumulates directly into a checking account or that can be spent on daily needs. Equity is only available once a homeowner chooses to sell a home, and even then is often subject to various taxes and other expenses,” said Aaron Terrazas, Senior Economist at Zillow. “Still, particularly for homeowners that have already or are very close to paying off a mortgage, this supplemental ‘income,’ especially if allowed to accumulate over several years, can essentially serve as a kind of second job that pays directly to a homeowner's bottom line, without nearly as much actual work involved in collecting it.”