Rather than median sales price, the S&P CoreLogic Case-Shiller Index uses a special mathematical formula based on the past few months of sales data to plot the course of home appreciation over time. As you can see from this graph, prices in the Bay Area have outpaced national trends since we emerged from the Great Recession.
If you’re young or living on a tight budget, renting a home makes a lot of sense. But there’s no substitute for the power of homeownership to build wealth and financial security. So how do you get the most out of your investment?
The benefits of ownership vastly outweigh the upsides of renting, especially over the long term. According to the S&P CoreLogic Case-Shiller Index, home prices in the San Francisco Metro Area rose a whopping 375% from 1990 to 2021, and every mortgage payment builds your equity and allows you to leverage more of that value. Speaking of payments, instead of basically throwing money away on rents that increase with inflation, a fixed rate mortgage locks in your monthly budget for the duration of the loan. You can also deduct interest payments on your tax return and take advantage of other tax incentives. And if you don’t need the home, you can always rent it out and get an even greater return!
No matter if you’re buying to occupy or rent, the home you purchase should fit your life goals — and your monthly budget. Buying your dream home might not make sense if you’re starting a family or embarking on a new career. Quick turnarounds can also get you into trouble responding to market fluctuations instead of betting on trends. And it’s incredibly tempting to borrow against your growing equity to pay for non-essentials like a new car when you should be accruing wealth and setting yourself up for the future. A better option would be to consider refinancing as mortgage rates decline. You could also think about maintaining a “rainy day” reserve fund for those unexpected curve balls life likes to throw.
Buying a home is a deeply personal decision and possibly the most significant financial transaction you will ever make. We’re here to help, but in the end, it’s your future — and your choice!
If you ever needed a visualization of the rising cost of homeownership, this chart should do the trick. Tracking median house sales price fluctuations by region since 1990, you can see a significant shift to the West and South and away from the Northeast, even as prices have appreciated across the country. Of course, the last spikes we saw in western sales led to the subprime bubble, so it’s good for investors to be cautious.
According to data from the California Association of Realtors, the Bay Area’s year-over-year house price appreciation rate went green for the first time in more than a year in August. This followed a dip of nearly 20% caused by a post-pandemic market correction.
The Dream For All Shared Appreciation Loan is a down payment assistance program for first-time homebuyers from the California Housing Finance Agency (CALHFA). When you sell or transfer, you repay the original down payment, plus a share of the appreciation in the value of the home. So how can you find your California dream?
In order to qualify for the Dream For All program, you need to be a first-time homebuyer, which is defined as someone who has not owned and occupied their own home in the last three years. You also need to occupy the property as a primary residence and complete two levels of homebuyer education. Oh, and your household income can’t exceed $300K.
State legislators allocated $300M to this program in the form of 30-year fixed-rate loans starting at 6% with a 1.45% fee. Unfortunately, while we were writing this blog, CALHFA announced that all of the program funds have been claimed as of April 7. Hopefully, additional funding will be allocated in the next state budget. In the meantime, get educated and get ready.
