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Here's Why It's Still a Great Time to Buy a Home

a family poses in front of the home they just bought instead of renting

Mortgage rates are higher than they have been in years. And prospective homebuyers may find themselves wondering: Is buying a home still worth it? Despite the high interest rates, many people may find that it’s still a great time to invest in real estate.

While rates may be higher, the long-term value of buying a home can far outweigh the short-term impact of elevated interest rates. Keep reading to learn more about home appreciation and the long-term value of real estate investments.

Historical Data on Home Appreciation

Historical data on home appreciation can help explain the potential benefits of buying a home in the current real estate market. Over the past several decades, despite fluctuations in the economy and interest rates, the general trend in home values has been consistently upward.

According to the Case-Shiller Home Price Index, which tracks changes in the value of residential real estate in the United States, home prices have shown remarkable resilience and growth over time. For instance, between January 2000 and January 2022, the national index rose by approximately 198%. This means that the average home value increased by nearly triple its original price.

Of course, the years between 2000 and 2022 weren’t all smooth sailing. Even when factoring in periods of economic downturn, such as the 2008 financial crisis, home values eventually rebounded and continued their upward trajectory.

Factors Driving Home Appreciation

Several factors contribute to the long-term appreciation of home values, including:

Limited Supply: Unlike other commodities, land is a finite resource. As populations grow and urban development continues, the demand for housing increases while the available land remains relatively constant. This imbalance between supply and demand tends to drive up property values over time.

Population Growth: Demographic trends play a significant role in the housing market. As populations expand, the need for housing grows accordingly. Factors such as immigration, birth rates, and internal migration patterns all influence the demand for homes, thereby supporting property values.

Inflation Hedge: Real estate has historically served as a hedge against inflation. When prices rise across the economy, the value of tangible assets like homes tends to increase as well. This is because real estate is considered a hard asset with intrinsic value. In other words, it’s unlikely to depreciate over time.

Improvements and Development: Investments in infrastructure, amenities, and neighborhood improvement projects can make certain areas more desirable to live in. This can also lead to an appreciation in property values. Additionally, individual homeowners who undertake home improvement projects, renovating or upgrading their properties, can contribute to neighborhood appreciation.

The Long-Term Perspective on Homeownership

Of course, it’s true that higher mortgage rates may result in increased monthly payments for homebuyers. But potential homebuyers or real estate investors should consider the broader context. Real estate is a long-term investment, and fluctuations in interest rates are just one factor among many that influence the housing market.

By taking a long-term perspective, prospective homebuyers can benefit from the potential appreciation in home values over time. Even if rates are higher now compared to recent years, you could benefit by locking in a mortgage at today's rates, which may continue rising.

And whether or not you decide it’s time to sell your home someday, home appreciation can benefit you even if you choose to live there forever. If you add value to your home, or your home appreciates due to other factors, your home equity may increase as well.

From Here to Home

While higher mortgage rates may not seem favorable, there are still good reasons to consider buying a home in the current real estate market. Historical data on home appreciation shows the long-term value potential of real estate investments. Home appreciation is driven by a variety of factors, such as limited supply, population growth, inflation hedging, and ongoing development.

By focusing on the broader trends and taking a long-term perspective, future homebuyers can make informed decisions that align with their financial goals. While short-term fluctuations in interest rates may grab headlines, the enduring value of homeownership remains a solid foundation for building wealth and financial security in the years ahead.

From FHA to VA, conventional to portfolio, learn more about Academy Bank’s mortgage options. Or, reach out to one of our expert loan advisors.

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