Comment on The amazing arithmetic of homeownership

The amazing arithmetic of homeownership

1 Retirees and near-retirees may be selling their homes simply because "that's where the money is" - home equity is their biggest asset and they need to use it to produce retirement income. Owning a home is still the best, most effective and most fundamental way for most people to build their net worth. According to the National Association of Realtors, the median sale price for a home at the end of the first quarter was $191,600, up 8.6 percent from $176,400 in the same quarter of the previous year. Even if you added the real estate taxes and insurance bill for the house - perhaps another $3,500 - your $12,080 in out-of-pocket expenses was less than you gained in (tax-free) appreciation. Fortunately, we don't need much appreciation for owning a home to be a great way to convert an out-of-pocket living expense into net worth. [...] if the home had appreciated at 4.9 percent, the homeowner would have recouped every dime of debt service expense in appreciation. Long before the mortgage is paid off, the annual appreciation will be larger than the fixed mortgage payment. Combine a small amount of inflation (or call it appreciation) with a small loan reduction every year, and it doesn't take much to put every dime of mortgage payment into your net worth.

 

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