Home Equity translates into buying and selling power. While home prices have remained relatively flat — depending upon neighborhood — Bay Area real estate has experienced dramatic appreciation over the last several years. When appreciation rises, so does home equity. And that bodes well for homeowners.
Homeowner Length Trends
The average U.S. homeowner stays in their home for about 13.3 years before moving. Comparing 2018 to 2014, that average has dropped in San Jose from 14.9 to 12.9 years.
According to ValuePenguin research, this is typical of high growth metropolitan areas due to the influx of new residents. However, when you compare these statistics from previous decades, the median tenure is relatively stable and higher than historical levels. Why? Namely the 2008 financial crisis, housing values, and mortgage rates slowed down homeowner mobility.
So how does this affect Bay Area real estate? In a word… inventory. The market relies on the ebb and flow of people moving (e.g., downsizing, trading up). When established homeowners decide to stay in their home for longer periods of time, there are fewer options for buyers. With high demand and low inventory, you see homes appreciate in value. And in the case of 2015-2018, that appreciation reached double-digits for many Bay Area neighborhoods.
When comparing year-over-year data, home appreciation is relatively flat. In the latest Sereno Group Market Report, July 2019’s median home price is slightly lower as compared to July 2018 levels.
For more perspective, let’s take a broader view and expand the time horizon. The U.S. real market took a major hit during The Great Recession. While SF Bay Area property experienced a decline, the last ten years has seen a remarkable recovery from the financial crisis that started in 2008. Let’s look at July 2009 statistics for Santa Clara County single-family homes:
- Median Sales Price – $580,000
- Average DOM – 76 days
- % List Price Received – 100%
- Months to Sell – 3.5
As you can see, growth in the last ten years is significant. The median single-family homeowner in Santa Clara County experienced $770,000 (or ~133%) in appreciation by holding onto their property between 2009 and 2019. That’s why I’m a firm believer that investing in Bay Area real estate is a financially smart decision.
Home Equity Is Up
In a recent study of the nation’s housing market from Harvard’s Joint Center for Housing Studies, the aggregate home equity rose from $7 trillion in 2011 to $15.5 trillion in 2018. That rise is also attributable to only modest increases to mortgage debt. So equity is rising from both sides — increasing home value and decreasing home debt.
For those homeowners who have 10+ years in their home, they have accrued a substantial amount of equity. According to a CoreLogic report, California homes gained an average $48,800 in home equity in one year. That equity translates into buying power:
Wealth that can be tapped for home improvements. The Home Improvement Research Institute surveyed homeowners and found that 75% are planning one or more projects in the next three months. This is the highest percentage since their tracking began in 2012.
Leverage when buying another home. Many homeowners translate their equity to the downpayment on another home. When evaluating a buyer’s purchase offer, the down payment is an important factor; it indicates motivation and ability to close the transaction.
Buying power in times of opportunity. Tapping into your primary residence’s equity can help you buy a second home or investment property. It also means that you have the resources to prepare your home for sale in any kind of economic market.
Home Improvement Projects That Add Value & Sellability
Kitchen and bath remodels often top the list of projects that add to a home’s value. However, there are other surprising improvements that have a positive ROI. According to BankRate, these more mundane upgrades can increase your curb appeal:
- Garage door – replace old wood doors with four-section doors with heavy-duty galvanized steel tracks with motorized opener
- Stone veneer siding – especially in entry ways
- Minor Kitchen remodels – focus on modern and functional upgrades
- Wood Deck Additions – enhance the backyard with areas for outdoor living areas
- Siding replacement – new siding gives an old home a facelift
- Entry door replacement – the front entryway is one of the first things buyers notice. While BankRate favors steel doors, I recommend choosing materials that complement your home’s style.
Buying or Selling Remains a Personal Decision
Whether you’re looking to buy or sell, you need an experienced guide in this complex and fast-paced real estate market. I’ve helped hundreds of individuals just like you successfully negotiate the most important financial transaction you’ll ever make. Contact me today to get started.