The number of closed properties in the Sioux Empire is down nearly 12% year over year. Potential buyers in the age group of 25-34 are not buying as they have in the past, giving concern for the older market who are wondering who will buy their house when they downsize. The housing crash of 2006-2008 wiped away large portions of equity.
These are just a few of the comments we hear in the news. The solution or answers to the above is to trust 80 years of history and our economic system.
Going back to 1940, the average home value in the USA was $30,600. When looking at every ten year increment, it was always higher than the previous ten year number, and in 2000 it was four times the value at $119,600.
January 2010 the cost of a new constructed home was $218,200, even after a substantial drop in prices between 2006 and 2010. A new house in June of 2019 would have cost $310,400 on the average. Just for the record, the only reason for the crash of 2006 was government intervention trying to develop a market that couldn’t have been.
Surprisingly, the greatest portion of many retiree’s net worth is their home. A house was a place for them to live, and it turned out to be a continuous investment plan as well.
In America, people will move five times in their adult life on the average. A change in housing is driven by one’s lifestyle: the starter home where investing begins, the move-up home where more space is required, the family home for more comfort, the empty-nester home with less space, and finally the retirement home with lower maintenance.
First time buyers continue to be the driving force behind a strong bull market, and we are seeing ownership in that group dropping from 44% to 40% today. The reasons for the drop are plentiful, but it is mostly driven by economics and commitment. This has slowed the market some, but one can anticipate they will eventually get into the market.
The primary key to building equity in a home is time. The sooner someone steps into the world of homeownership the more opportunity there is to let inflation and debt-reduction take hold. Ideally, start with a 30 year loan, and maintain the remaining length of the loan regardless of when a move happens, and the house is debt-free in 30 years.
It’s good to know homes appreciate at the rate of inflation plus 1% each year. That means the equity in a home after 30 years will have buying power 30% greater than inflation. There is also potential income tax savings, plus a place to call home with freedom to live the way you want.
Tony Ratchford, Broker for KW Realty Sioux Falls, CRS, ABR, SRES, Luxury Homes Institute Member