Set proper expectations for your home’s value

If you are like a lot of homeowners, you occasionally check real estate websites for a sense of the current value of your home. But you may be wondering, how accurate are the estimates? Even as you evaluate your home’s value online, there are a few elements to keep in mind.

The housing market in the U.S has generally seen prices move higher over time. But prices do drop periodically. Local factors can also have a major impact on the value of your home. Areas enjoying a strong economy tend to see higher demand for housing, pushing prices up. A location that suffers an economic setback, like a major employer closing down, may see its housing market suffer.

The housing market today compared to historical trends

The state of housing today is mixed. In certain markets, particularly in select urban areas, home prices have skyrocketed. This has given existing homeowners a more valuable asset.

Yet the median sales price of a home today across the U.S. is below its record levels. According to data published by the U.S. Federal Reserve Bank, the median price of a home sold in the United States was $320,000 (as of the second quarter of 2019). That’s about five percent below the record set near the end of 2017, which was $336,000.

The misperception that home prices always rise was shattered during the Great Recession. Between 2007 and 2009, the median home price across the country fell by 19%. It didn’t return its peak level until 2013. Of course, prices varied in different markets. Values in your own community may have been higher or lower.

Over longer periods of time, home prices have risen. Twenty years ago, the median home sales price in the U.S. was less than $160,000, about half of the average value today.

Rates impact markets

Mortgage rates can influence demand for houses. In recent years, we’ve enjoyed an extended period of favorable mortgage rates. As of June 2019, the average mortgage rate on a 30-year home mortgage was less than 4%. This is not far from the lowest levels reached in recent years. But these are abnormally low financing rates based on history. Even in the depths of the Great Recession in 2008, average 30-year mortgage rates were in the 5-6% range.

The market was entirely different in the late 1970s through the mid-1980s, when 30-year mortgage rates rose to as high as 18%. When rates are that high, financing costs make up a larger portion of a monthly home mortgage payment. Home prices may have to be adjusted lower to keep buyers in the market as rates rise.

How your home will impact your retirement

Regardless of market conditions, your home will likely remain one of your most valuable assets. Be prepared for the fact that values can fluctuate based on economic conditions and factors such as the direction of interest rates.

Also be cautious about how the value of your home is incorporated into your retirement plan. Throughout retirement, you will need a place to live, and there will be costs associated with that. Be realistic in your expectations about the extent to which your house may contribute to your retirement income strategy.

Even if you sell your home, you may need to use some or all of the proceeds to buy your next home. Or alternatively, you may need to tap funds from the sale to help cover rental costs or expenses related to specialized care needs, if required.

Source: Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/MSPUS

Randy Groff, ChFC, CLU, CRPC, is a financial adviser with Ameriprise Financial Services, Inc., in Marshall.


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