Money doesn’t grow on trees. But it can grow under the right circumstances.
For most people, a home is the biggest purchase they’ll ever make — and their biggest investment opportunity.
Here’s an example. Let’s say you put 20 percent down on a $200,000 home, so you have $40,000 invested and a mortgage of $160,000. If your home’s value were to increase 5 percent in a year — a reasonable assumption based on Austin’s recent history — you would have a $210,000 home and your down payment of $40,000 has leveraged a $10,000 gain in personal net worth. Bottom line: 25 percent return on your investment.
That’s the transformational power of Leverage. The value of the investment went up 5 percent, but you made 25 percent.
This is an important dynamic, especially for first-time homebuyers who are making plans for the future. Clearly, understanding the growth potential of your property before purchasing it can help you plan your financial future and make smart decisions about how much to spend on your first home.
Positive Trends
Austin has a pretty strong track record that suggests home values are likely to continue to grow. Consider the median price of a home, which has grown rapidly since the economic problems of 2008 and 2009. (See more data and charts here.)
For example, the average price of homes sold in the first half of 2014 was $291,769. That’s nearly 5 percent more than the first half of 2013. That’s just an average, however.
Neighborhood dynamics and home improvements can significantly impact the value appreciation for any given home. So, if you’re trying to forecast how home prices might impact your net worth, it’s important to look at what’s going on in your neighborhood.