When homeownership is discussed as a way to build wealth, what is really being talked about is equity. Equity refers to the value of a property minus the amount still owed on the mortgage. A homeowner will gain equity when home prices increase and also as they pay off their mortgage. In other words, equity is the part of a property’s value that belongs to the owner. If they sell that house, that money is their’s. Naturally, increasing equity is a good thing for current homeowners and among the main motivating arguments for homeownership. After all, when you pay rent, that money’s gone forever. In recent years, rebounding home prices have led to significant gains in home equity. For example, CoreLogic’s Q4 2015 Equity Report found home equity up 11.5 percent over the same period the year before. It was the 13th consecutive quarter of double-digit improvement. Anand Nallathambi, CoreLogic’s president and CEO, said the number of homeowners with more than 20 percent equity is rising rapidly. “Higher prices driven largely by tight supply are certainly a big reason for the rise, but continued population growth, household formation, and ultra-low interest rates are also factors,” Nallathambi said. “Looking ahead in 2016, we expect home equity levels to continue to build, which is a good thing for the long-term health of the U.S. economy.” More here.
