Sure, but you’ll never realize your gain until you sell the house. And what do you do then with no place to live? You can’t upgrade since the nicer house that was selling for $240K when you bought yours for $190K is now selling for $290K.
All you could do is find a similar home for $240K which you already own in the first place.
A great use for the extra home value can be refinancing for the greater home value to pay off credit cards. Over a 30 year mortgage, you might raise your monthly payment 100-200 dollars and wipe out thousands of dollars of credit card debt in a single stroke.
Note: this is only a good idea if you then change your spending habits.
Which is true of every investment. You have still increased you net worth and are therefore better of than if your house hadn’t increased in value.
Hypothetical situation 1: Your house doesn’t go up, everyone elses does. If you ever wanted to move, you’d have to move to a smaller house or a worse area for the same price, or pay more for a similar house.
Hypothetical situation 2: Your house doesn’t go up, nobody elses does either. To move to another house, you will either pay more for more house, or pay the same for the same amount of house, or pay less for less house.
Hypothetical situation 3; You didn’t buy a house at all. You are 3 years older, have thrown away three years worth of rent someplace and have nothing to show for it. The house that you are currently paying 190000 for is on the market for 240000. You will pay more for the same house or the same for less house. You can’t afford more house. Now, if you were wise, you invested some money for buying a house, but real estate is currently gaining faster than pretty much anything else.
Ideally, you want you house to stay the same until the day before you sell it and then for it to triple in price, but that isn’t going to happen. The next best thing is constant increase. If you want to keep your property value down, you could always smash up a few walls and put some holes in the roof, but I don’t think its worth it.
But it seems everyone is currently in:
Hypothetical situation 4; Your house goes up, everyone elses does.
This seems to yield the same results as situation #2.
However, with the drawback of a larger tax assessment.
So, besides the pro of “more equity means more equity to borrow against”,
why are people excited about being in situation #4, rather than being content in situation #2?
Except that the same number of kids need taught and the same number of roads need paved and the same number of parks need mowed. if property values do not go up, mil rates just go up and you pay a higher mil rate on a lower value house and pay the same in taxes. in the present, you are not really farther ahead unless you can take advantage of ditching PMI or need the home equity, but OTOH, you aren’t falling behind everyone else who has money in real estate.
In the back of my mind there’s a cynical view of all of this. I can’t help but think that people will refi- to fix the house and then be forced to sell in five or seven years because they overextended themselves. Banks seem to be awful powerful these days.
On the other hand I think it’s always good when the money flows around/ reshuffles (like the .com boom). Some people who didn’t have it before will walk away with it and I like that. It depends on the person and the area I guess. For instance, my house has more than doubled in value in the seven years I’ve been here. The house I tried to sell when I moved here, but couldn’t, is now worth a realistic figure.
The rates are creeping up again. The market doesn’t seem to mind (which bothers me) so maybe everything will flip again. hang on with a nice tight grip.
It’s not just banks who gain from this. I am in the situation where I can’t possibly afford to buy a house (even a starter home) where I live because I refuse to be saddled with a mortgage payment that’s 70% of my income. If everybody wasn’t overextended and speculating on real estate, I could buy in and have a good investment. But as it is, I’m renting, and likely will for the next few years.
My cynical fear is that when those ARMs start to become unaffordable, the government will step in and reward bad decisions with tax dollars taken from the more prudent.
I do feel bad for people who are trying to get a first home. I have a friend who’s getting married and there’s no way they can get a decent home until something gives. For the time being his mother is nice enough to let them move in a save up some money.
I’d stay a renter too, with the idea that there’ll be a reasonable end to all of this.
I can think of one positive benefit of home value going up, but it only applies if you have private mortgage insurance (pmi) on your home loan. The higher your home appraises for the less your loan to value ratio will be and the faster to get the pmi removed. Not such a big thing for some people but for others it is quite a chunk of their monthly mortgage payment.
Our house has increased in value by about 200K since we purchased it four years ago. The only thing that happened was our property taxes went up by about $800. I’m still paying less than lots our neighbors in this county but we live in fear that a reassessment will drive up our taxes even further.
So we really haven’t benefited at all.