Five-year home equity outlook favors today’s buyers
Some buyers are part of the tsunami of new residents who have discovered that NE Tenn. and SW Va. Some are at or near retirement. Others are part of the work-from-anywhere labor force. There are veterans looking at the highly-rated services at Mountain Home and a region with veteran-friendly colleges and communities. And then there’s the local Millennials. They’re in their peak home-buying years, and many have backing from the bank of Mom and Dad.
One of the top reasons that many think now is a great time to buy is simply the wealth-building opportunity. The most motivated buyers know that monthly rent payments will go on forever. Homeowners have the advantage of paying off their mortgage and stopping the monthly payment. Each time a renter pays the rent, they build wealth for the landlord. Each time a homeowner makes a mortgage payment, it produces some equity and increases his or her overall wealth.
Look at the example of a person who bought a local home in 2009. The market didn’t look anything like it does today. It was a scary time. The country was in a recession caused by a housing bubble, and home prices were down.
But there were folks who took the homeownership financial benefits long view. Back then, the average homeownership tenure – that’s how long an average owner stays in a home before selling – was seven years. During those seven years, home prices improved as they historically have done over the long term.
The difference between the 2009 average home price and the 2016 average price was $12,523. If that owner stayed in that 2009 home until last year, they would have seen the average sales price increase $68,491. Albert Einstein once said, “The most powerful force in the university is compound interest.” The same principle applies to the home equity cumulative growth rate.
Every year over a hundred economists, real estate experts, and investment and market strategists participate in the Home Price Expectation Survey. The big take-away is how they think home appreciation will look for the next five years.
The most current outlook is:
- 2021 – 6 percent.
- 2022 – 4.5 percent.
- 2023 – 4 percent.
- 2024 – 3.6 percent.
- 2025 – 3.5 percent.
Some of that may be a little high for the local market. During the past two decades, the local annual appreciation was about 2.5 percent. It has averaged a little better than 7.5 percent for the past three years. That’s expected to begin arching lower as the market stabilizes to more balanced conditions.
If you accept the Expectation Survey’s growth pattern and tweak it to adjust for the national and local price averages difference, today’s average sales price will appreciate by about $32,000 in the next five years.
Of course, that’s just a projection. The local market could be stronger than its historical pattern. But there is little reason to doubt the expert outlook that today’s buyers will build above-average home equity over the next five years.
NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee – Southwest Virginia region representing over 1,500 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries. Pending sales, Trends Reports, and the regional market analytics can be found on the NETAR websites at https://netar.us/voice-real-estate-northeast-tennessee.