The "Home Wealth" Effect
In America, the most common way to accumulate wealth is through home ownership.
At the time of a survey conducted by the National Association of Realtors, the "average" homeowner has $50,000 in "unrealized wealth" in their home. Those families with incomes over $75,000 averaged $100,000 in "unrealized wealth." Families with incomes less than $40,000 averaged $40,000 in unrealized wealth.
"Unrealized wealth" just means your house is worth more than what you owe on it. This is also called "equity." Savings. You own an asset that appreciates in value.
Over the last year, the "average" house increased 7.1% in value. Since the "average" house is worth $153,300, that means in one year the "average" homeowner accumulated $10,884 in wealth -- by doing nothing more than making a mortgage payment (plus taxes and insurance). Since interest and property taxes reduce your taxable income, the federal government is subsidizing this increase in "home wealth."
Three out of four homeowners say their "home wealth" is greater than their "stock wealth."
The most common way to "tap in" to unrealized wealth is to refinance and pull cash out of the home, get a home equity line of credit or sell your home. At least forty percent of those who sell their home use some of the money to buy a bigger, better, or newer home.
Renting does not accumulate wealth.
Statistics and figures come from the "home wealth" survey of the National Association of Realtors conducted in August and September of 2001.
© copyright June 2002 (updated June 2003) by RealEstate ABC
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