Own Your House? You’ve Made Out Like a Complete Bandit!

This isn’t just another “buying is better than renting” rant.

If you own your house, you probably know things have gone your way for a while, but you probably haven’t really realized just how much so.

Here are three things you should crack a huge smile over…

The Obvious – Your House Is Worth More (Depending on When You Bought, Maybe a Lot More)

Sure, with mortgage rates rising and people more cautious in the expectation of a recession, housing values have pulled back some. Still…

According to YCharts, median home prices have gone up a lot, even counting the recent pullback.

• In 2017, the median home price was $246,500. As of November 2022, we’re 50.4% higher.
• In 2018, the median was $254,700. We’re now 45.5% higher.
• In 2019, the median was $274,500. We’re now 35% higher.
• In 2020, the median was $309,200. We’re now 19.9% higher.
• In 2021, the median was $358,800. We’re now 3.3% higher (we were 15.3% higher at the peak, but it’s nice to be still higher rather than lower!).

Wanna know what’s even crazier?

If we assume you put in a 20% down payment and ignore how much you’ve paid down the principal, here’s how much you’ve gained through appreciation…

Year	Median Home Value	20% Down Payment	Current Equity (Ignoring Principal Reduction)	Annualized Return on Investment
2017	$246,500	$49,300	$197,200	25.99%
2018	$254,700	$50,940	$166,940	26.80%
2019	$274,500	$54,900	$151,100	28.80%
2020	$309,200	$61,840	$123,340	25.88%
2021	$358,800	$71,760	$83,360	7.97%

I ignored the reduction in principal because you worked hard for every dollar you paid down. The above is just what the housing market handed you on a silver platter…

If you bought in 2017 through 2020, you’re sitting on a nice annualized return that’s north of 25%!

And if you think the 7.97% for 2021 isn’t anything to write home about, compare it to the S&P 500’s total return since January 2021, which is an anemic annualized 2.59% as of this writing.

Doug ‘Buddy’ Amis, CFP®, President and CEO, Cardinal Retirement Planning, Inc. agrees, “Homeownership and mortgages are often overlooked and under-discussed subjects in investment management and financial planning. Investment managers focus on more liquid assets and can add value in weighing the benefit of paying down a mortgage or maintaining the debt while investing in higher-yielding assets. Financial planners can vary their approach and will dig deeper, looking at the cash flow and budgeting required to purchase a home or rental property.

“But in my experience, neither profession does a great job discussing the details around the home as an asset (typically one of the larger ones) that can add diversification to a portfolio. Home equity lines of credit and home equity conversion mortgages for retirees provide sources of liquidity that can be a great tool in a financial toolbox. These tools should be reviewed more often with clients at investment advisory and financial planning firms. This is especially true in the current market environment where we’ve seen home values rise substantially and investment accounts fall across the risk spectrum (i.e., both stocks and bonds).”

The Less Obvious – Your Mortgage Payment Is Worth Less

Let’s look at average mortgage payments (principal and interest) by year, using average interest rates on 30-year-fixed loans (January of each year) from Freddie Mac and average loan amounts from Bankrate.

Year	Average Loan Amount	Average Interest Rate	Average Payment (P&I)
2017	$201,811	4.20%	$986.89
2018	$208,180	3.95%	$987.89
2019	$213,599	4.51%	$1083.54
2020	$215,655	3.72%	$995.06
2021	$229,242	2.65%	$923.76

We’ll ignore the fact that if you had a 4.2% loan from 2017, you’ve likely refinanced it at under 3% early last year (you did, right?).

So, if you somehow forgot to refi, your payments have stayed the same, right?

But have they, really?

Remember that little thing called inflation? While it made groceries and many other things more expensive, it actually chomped away at the value of your “fixed” mortgage payments.

A lot.

Here’s how that worked out, using the Consumer Price Index for all Urban Workers (CPI-U) from the Bureau of Labor Statistics (BLS).

Year	Average Payment (P&I) in Nominal Dollars	Inflation Since Jan of Year	Inflation-Adjusted Average Payment (P&I)
2017	$986.89	22.60%	$804.97
2018	$987.89	20.11%	$822.49
2019	$1083.54	18.27%	$916.16
2020	$995.06	15.40%	$862.27
2021	$923.76	13.81%	$811.67

There’s a caveat to that, of course.

If your income hasn’t kept up with inflation, you haven’t been able to feel this relief. But if it did, your “fixed” payments have become that much easier to pay.

The Even Less Obvious – Your Mortgage Balance Is Worth a Lot Less

Finally, the big kahuna.

I’ve always said that paying off your mortgage faster than you’re required isn’t very savvy.

Here’s a perfect example proving it.

Year	Average Original Loan Amount in Nominal Dollars	Average Interest Rate	Average Current Loan Balance in Nominal Dollars	Inflation-Adjusted Average Loan Amount
2017	$201,811	4.20%	$183,454	$149,636
2018	$208,180	3.95%	$188,502	$156,941
2019	$213,599	4.51%	$199,188	$168,418
2020	$215,655	3.72%	$203,597	$176,427
2021	$229,242	2.65%	$219,397	$192,775

That’s a lot of numbers, so to make it clearer, let’s just look at the net differences…

Year	Loan Balance Reduction Due to Payments	Loan Balance Value Reduction Due to Inflation
2017	$18,357	$33,818
2018	$19,678	$31,561
2019	$14,411	$30,770
2020	$12,058	$27,170
2021	$9,845	$26,622

So, if you never refinanced your loan to reduce and lock in a historic sub-3% low interest, your payments will have reduced your mortgage debt (on average) by anywhere from $9,800 to $19,700.

At the same time, inflation had its way with all that money you owed, so it’s worth a lot less now.

Anywhere from $26,600 to $33,800 less!

That means that inflation reduced the value of what you still owe far faster than your monthly payments ever did. Anywhere from 60% more than your payments to 170% more!

And if your mortgage amount was far above average, that value reduction in the dollars you owe would have been that much bigger!

Ayad Amary, MBA, CFP®, VP and Senior Wealth Advisor at Wealthcare of the Lehigh Valley weighs in on this, saying “From a planning perspective, this may change how you allocate your free cash flow. If you have a current mortgage balance at a rate of 3%, you may be less inclined to make those extra mortgage payments to pay down the principal early. 

“With the Federal Reserve continuing to raise rates, you can now get guaranteed interest rates on principal-protected CDs and US Treasuries around 4.5% for 1-year maturities. This makes for an attractive spread as compared to the mortgage rate. Of course, your personal financial priorities determine how this fits into your overall planning.”

The Bottom Line – Putting It All Together

Sure, inflation is a real problem for almost everyone.

But if you’re a homeowner, you’ve likely hit the trifecta!

Your equity increased by anywhere from $11k to $148k (for the average home) because the housing market went crazy (despite the recent partial return to sanity).

Your mortgage payments are at least 1/7 lower in real dollars, and if your income kept up with inflation, your mortgage payments are that much easier to bear.

And your mortgage balance is worth tens of thousands less, above and beyond what you paid down through your monthly payments!

Not too shabby, right?

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.