Collins: Unlocking the benefits of homeownership
Photo courtesy of Santa Clara County Association of Realtors.

In my past articles, I have focused on the state of the real estate market in the South Bay with topics such as future trends, economic impacts and housing inventory. It is no secret that the home ownership market is red hot right now, due to low inventory and incredibly high demand. Median home prices in Santa Clara County are at an all-time high.

When homes are priced well, they are receiving multiple offers, and oftentimes homes are selling for well above asking price. This is due to several reasons, most notably the fact that home inventory levels are so low — Santa Clara County currently only has 677 single-family homes on the market.

This begs the question: What is driving this continued demand in one of the most expensive markets in the country?

It all comes down to the benefits of being a homeowner.

As Johnny Khamis touched on in his recent op-ed, homeownership allows you to build equity through your home mortgage, creating financial stability and freedom. It sounds backwards at first, given that you will be paying off a mortgage for several decades, but homeownership is one of the safest ways to achieve long-term financial security and independence.

Home equity is built over time as your property appreciates in value and the life of your mortgage decreases. Looking at data from the last several decades, we’ve seen annual appreciation at roughly 3-4% nationwide and a much higher number when we drill down at Silicon Valley. As you pay down your mortgage principal every month, you are actually consolidating debt and creating a more stable financial future for yourself. As your earning potential increases annually, your mortgage typically stays fixed.

This is not the case if you are renting property. There is a very high likelihood that rent increases could outpace your wage increases. You simply have no control over it.

The median duration of ownership on a primary residence in the San Jose metropolitan area is 14 years, higher than the national average of 13 years. Compare that to the national average of renting, which is 3 years for a single-family home and only 2.5 years for an apartment. Homeownership creates a stronger neighborhood connection and an interactive community. It is only human nature for people to have a stronger tie and sense of pride to something owned as opposed to rented or borrowed.

Housing stability and quality have been proven to directly correlate to the health of people, especially children, along with better educational opportunities and results for them. Poor housing quality and instability can lead to increased stress, depression, anxiety and aggression. Long-term housing and subsequent school stability leads to a better learning environment, higher attendance rates, better grades and a greater likelihood to participate in extracurricular activities.

Homeownership will also help build generational wealth and a brighter financial future for all including low-income families. Nationwide the average homeowner’s net worth is over 40 times greater than renters. A home purchase is an investment in your future and a catalyst to greater financial stability and freedom. As I have said before, the most effective way to tackle the equity imbalances that we face today is through the expansion of homeownership opportunities.

Some argue that homeownership is unattainable. They say that it is not the solution, but the cause of the problem. I am here to dispel this misconception. On average rent prices increase 4% annually nationwide and even more in metropolitan areas like San Jose. Over time, monthly mortgage payments can often end up being cheaper than monthly rent payments.

Expensive down payments are often the largest hurdle to homeownership, but several programs exist to offer support. The Federal Housing Administration and the California Housing Finance Agency offer mortgages that require minimal down payments. Locally, the Empower Homebuyers SCC Program administered by Housing Trust Silicon Valley allows first-time homebuyers to purchase a house with only a 3% down payment.

Lastly, there are affordable homes in our area. MLSListings currently has 109 active listings of single-family homes, condos or townhomes in Santa Clara County that are under $600,000. Paired with down-payment assistance, the goal of homeownership is very attainable.

Homeownership is an important tool for driving equity that lifts up our entire community. The National Association of Realtors, California Association of Realtors and the Santa Clara County Association of Realtors are committed to increasing homeownership rates to decrease the growing wealth gaps in our communities. Property ownership is an important tool to build generational wealth and create a more equitable society.

San José Spotlight columnist Neil Collins is CEO of the Santa Clara County Association of Realtors, a trade association representing more than 6,000 real estate professionals in Santa Clara County and surrounding areas. His column appears every fourth Thursday of the month. Contact Neil at [email protected] or follow @neilvcollins on Twitter.

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