The Strong Investment Potential of Your Home

As 2023 approached, there was considerable speculation about a potential recession that could lead to a crash in the housing market. Several media outlets predicted a significant decline in home prices, possibly by 10-20%, which may have left you feeling uncertain about the decision to purchase a home.

However, the reality turned out quite differently: home prices increased more than typically observed. Brian D. Luke, the Head of Commodities at S&P Dow Jones Indices, provides an explanation:

"Reflecting on 2023, it seems the year surpassed the typical annual increases in home prices observed over the last 35 years."

In order to provide perspective on the growth seen last year, the graph below utilizes data from Freddie Mac illustrating the annual changes in home prices since 1980. The dotted line represents the historical average for home appreciation.

Key Insight: Home Prices Tend to Increase Consistently

According to a Forbes article:

". . . the real estate market in the United States has a proven track record of steadily appreciating in value."

Indeed, since 1980, the sole instance of declining home prices occurred during the housing market crash, as indicated in red on the preceding graph. Thankfully, today's market conditions are significantly different from those in 2008. For one, there is currently a shortage of homes available to satisfy the demand from buyers. Furthermore, homeowners today possess a substantial amount of equity, placing them in a much more secure position than before. Consequently, this implies that we are unlikely to see a surge in foreclosures that could lead to a drop in prices.

The consistent increase in home values each year, with the exception of the four highlighted in red, underscores the wisdom in owning a home. Homeownership often translates to owning an asset that tends to appreciate over time. With the appreciation of your home's value, your overall net worth also sees growth, making it a prudent financial decision.

Therefore, if you are in a strong financial position and ready for the financial responsibilities associated with owning a home, purchasing one could be a highly sensible decision for you.

Bottom Line

Home values typically increase over the years, which renders purchasing a home a wise decision if you're prepared and capable. Consider reaching out to a local real estate agent to discuss your objectives and explore what options are available in your area.