Lori Jean's
Real Estate Quick Takes

Have a question about our local real estate market? Reach out to me anytime; I'm always here to help.

"Aside from the equity they may have in their homes, most Americans really don’t have any savings to speak of."

—David Bach, Author of The Automatic Millionaire Homeowner

From the 1940s to 2022, home values rose by 14,600% (that’s 14 thousand percent). In 1945, you could have purchased a lovely home for just $2,938 ($30,600 in today’s dollars). The average US household income at that time was $3,300 per year. So, the cost of a home was less than a year’s wages. The average American household income in 2021 was $70,784, while the average home price was $428,700, or 6 times the annual household income.  

The ratio of income to mortgage payment demonstrates what the rising cost of homeownership means to the family budget. But, the ultimate value of the house also has an impact on family wealth, possibly for generations. The median home sales price in the US was $428,700 as of the first quarter of 2022 (Maryland is close to the median at $407,300). The mortgage payment at 9% (20-year average) is $3,442. The median property tax in the US is $206 per month, and the average homeowner’s insurance is $115 per month. The average American is paying $3,763 per month for their home, which is 64% of the average US household income of $70,784 (before taxes). In 1945 the monthly payment with taxes and insurance was about $16 per month or 6% of the average household income of $3,300 per year. 

There are many factors that contributed to the rise in home values and home purchasing for Americans over the past 80 years: inflation, depression, recession, wars, housing shortages, immigration into the US, migration to and from cities within the US, The Federal Aid Highway Act of 1956, government loan programs, rising incomes with higher education, more disposable income with a much lower birth rate (the average family in 1950 had five children), racist policies that blocked much of the population from receiving government-backed mortgages and the repeal of such laws and practices, technology innovations, international trade, and the list goes on and on.   
 
The hurdle to entering homeownership and the monthly cost is high, so why buy a home? First, you need to live somewhere, and while the cost of rent is statistically less at 35-45% of household income, you never get anything from a rental home, you never pay off your rental home, you gain zero equity, you can’t leverage it, you can’t pass it on to your heirs, your rent will always go up over the years, and you can be evicted. So, you can either pay your landlord's mortgage, or you can reap the benefits of increasing home values. Here's a link to one of my other newsletters, where I cover how to build your wealth through real estate over the long run.

In 2021, the average family had $239,000 in equity. You will most likely own three or more homes in your life, cashing out the equity to buy up to the next home as your family grows, then cashing out to buy down and live off the equity you have acquired over a lifetime of real estate ownership. But let’s pretend you buy only one home and live in it for 50 years. You pay $428,700 and pay it off over the next 30 years at an average interest rate of 6.5% (today’s market rate). Your total payments would be $975,483, but the value of the home at just a 3% increase in value per year would be $1,879,380. Furthermore, you paid only taxes and insurance for 20 of the 50 years you lived in the home, increasing your disposable income (which could be invested for retirement) and allowing you to live on a fixed retirement income.

Does this sound far-fetched? I live in a home that was built in 1941 for $2600, and today it is worth 18,000% (18 thousand percent) more. Over the course of renting for 50 years, your rent would have gone up substantially.  When you own your home and get to your fixed-income retirement years, you will be comfortable. That is peace of mind and a good life. But the very best part of buying a home is the generational wealth you pass on to your loved ones.

Imagine if they keep the house that you paid off many years prior for the next generation. What is a 14,000% increase on a home worth $1.8 million - you do the math.

The Automatic Millionaire Homeowner by David Bach

This quick read will help you understand the importance of homeownership in wealth building and how to leverage your asset to grow more wealth. The principles are simple but effective. Click here to view on Amazon.

Thinking of selling but have a question? Reach out to me anytime–I'm always here for you.