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• 1 2022-11-29T14:29:11-08:00 How Does it Work 7 plain 2022-12-12T12:12:17-08:00      In order to have a conversation about how housing inequality has impacted African American wealth creation there needs to be an understanding of how a home impacts wealth. We have all heard the cliché, but how exactly does homeownership increase wealth? The answer may seem complex, but it can be broken down in three key concepts. Ben Hecht, President and CEO of Living Cities writes in a 2017 Huffington Post article the three keys to understanding. A home appreciates, it is enhanced by leverage, and a home is forced savings.
  
       Real estate appreciation simply put is the increase of a property’s value over time. There are a variety of factors that contribute to such an increase, and the same factors can cause a home to lose value as well. The 25-year average appreciation rate of U.S. homes is 3.9%.  Factors that contribute to home value appreciation are:
  • Amenities
  • Condition
  • Size
  • Location
  • Supply and Demand
  • Economy
  • Interest rates
  • Inflation
• 1 2022-12-02T05:30:29-08:00 Leverage: Turn a Little into Alot 6 plain 2022-12-09T09:28:45-08:00      Now that we’ve tackled appreciation, how does a owning a home enhance one’s leverage? What Hecht is describing here is the power of a home to leverage an initial investment into greater returns through the mechanism of appreciation. Simply put, what one invests in the form of a down payment can have significant returns because a home appreciates based on the entire value, not what you invested. Numerically speaking, if the average appreciation is 3.9% and a homeowner invested $10,000 on a down payment on a $100,000 home, this translates to a $3,900 return on investment (ROI) instead of a $390 return.
       Lastly, the concept of forced savings is pretty simple. Paying off a mortgage as savings? Sounds counterintuitive, but as a homeowner pays off the mortgage, they are building equity at the same time. When the mortgage is paid off a homeowner has something to show for it. A home that is payment free from that point on, but more importantly value that can be taken out against the home, or profit on the sale of the home. A home can be much more than a place to live, it is in essence a giant piggy bank. Now keep in mind all the factors listed that contribute to home ownership can work in the other direction. A home can depreciate in value as well.