The Importance of Home Equity

I wrote here earlier this month (A House Is Not An ATM, 10/5/09) about the power of leverage, and how modest price appreciation in real estate can represent a truly huge return on investment over time.  That is not money to play with or to borrow to finance your current lifestyle.  Nonetheless, home equity can become substantial.

Today I posted on my Local Market Information page (http://www.ehomesbymorris.com.z57preview.com/custom3.shtml) an article from RISMedia about “How Home Equity Should Figure Into Your Retirement Planning.”  Among a lot of great information there is the fact that “The equity in your home represents a big part of your wealth.  If you’re married, your non-financial assets — mostly the equity in your house — represent about 70% of your total assets …,” according to the Society Of Actuaries.

Real estate can be a great investment.  If you’re intentionally buying investment property, you should have specific objectives and time horizons in mind, and recognize that there is risk involved.  If you’re buying a home for yourself and your family, then your focus should be on the home.  I advise all my home-buying clients to (a) buy within your means, (b) buy at reasonable market value (and my service includes that price consultation in every case), and (c) manage your life, as much as possible, so that you can pick your time to sell.  Markets cycle — that’s just reality — and if you get trapped into selling at the wrong time, then your financial results may be compromised.  However, over any 10-year period over the past 50 years you would have gained meaningful equity through home ownership, and the odds are only a little worse over just a 5-year holding period.