For potential homeowners, the decision to buy a home is one of the largest financial decisions they will ever make. Like many purchases, the decision may be driven by emotions. In this article we will try to quantify some of the tangible benefits and costs of owning a home, which will give potential buyers a rational basis for making a housing decision.
Measurable Benefits of Homeownership
The largest measurable financial benefit to homeownership is price
appreciation. Price appreciation helps build
home equity, which is the difference between the market price of the house and the remaining mortgage payments.
The chart below, from the
Office of Federal Housing Enterprise Oversight (OFHEO) shows rates of home price appreciation from 1990 to 2007. The OFHEO publishes a quarterly Housing Price Index, which has many subcategories, including state and metropolitan statistical areas (MSA). OFHEO's website also has several tools for estimating the value of a home based on average rates of appreciation. (For related reading, see
Why Housing Market Bubbles Pop.)
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| Figure 1 |
| Source: Office of Federal Housing Enterprise Oversight |
Using one of the tools provided on OFHEO's website, we calculate the following home values and rates of appreciation for the following select cities. Each is based on an initial price of $250,000 in the first quarter of 1990. The ending values are based on the first quarter of 2007.
Home Price Appreciation from Q1 of 1990 to Q1 of 2007 for Select Cities
|
| City |
State |
Initial Value |
Ending Value |
Total Appreciation % |
| Alexandria |
Va. |
$250,000 |
$697,635 |
179% |
| Anaheim |
Calif. |
$250,000 |
$691,776 |
177% |
| Anchorage |
AK |
$250,000 |
$752,155 |
201% |
| Billings |
Mont. |
$250,000 |
$673,39 |
169% |
| Boise |
ID |
$250,000 |
$786,843 |
215% |
| Buffalo |
N.Y. |
$250,000 |
$394,981 |
58% |
| Charleston |
S.C. |
$250,000 |
$750,493 |
200% |
| Chicago |
Ill. |
$250,000 |
$619,046 |
148% |
| Clearwater |
Fla. |
$250,000 |
$767,523 |
207% |
| Denver |
Colo. |
$250,000 |
$709,583 |
184% |
| Des Moines |
IA |
$250,000 |
$534,767 |
114% |
| Honolulu |
HI |
$250,000 |
$583,680 |
134% |
| Huntsville |
Ala. |
$250,000 |
$438,807 |
76% |
| Kansas City |
Mo. |
$250,000 |
$514,225 |
106% |
| Little Rock |
Ark. |
$250,000 |
$492,915 |
97% |
| Madera |
Calif. |
$250,000 |
$898,232 |
259% |
| Miami |
Fla. |
$250,000 |
$1,042,106 |
317% |
| New York |
N.Y. |
$250,000 |
$647,707 |
159% |
| Raleigh |
N.C. |
$250,000 |
$482,343 |
93% |
| Salt Lake City |
UT |
$250,000 |
$870,683 |
248% |
| San Antonio |
TX |
$250,000 |
$519,712 |
108% |
| Source: Office of Federal Housing Enterprise Oversight |
As you can see from the above table, all of the areas saw home prices increase over the 17 years. However, there was a lot of variability in the total appreciation percent between the areas.
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