The topic of inflation is a very heated one right now and has been for the last two years as average mortgage rates have gone from 3.5% to 7% back down to 5.5% (with the right loan) as of this moment. Let's take a look at what would have happened to your money if you Invested it in a HOME vs a Savings Account or some other Investment. I think you will be surprised by what you find.
Here are some calculators so you can punch in the numbers with a higher/lower home value $ dollar amount invested to follow along. The hyperlinks also contain articles you can read.
Let's use the amount of $100,000 because it will be easier to show you the math. If you were to invest in a Savings Account or Investment getting 4% interest per year 10 years ago versus buying a home in Los Angeles County at the median home value 10 years ago. Here is what the numbers would look like and how much it would protect you from inflation.
In a HOME: The median home price in Los Angeles County in 2013 was $410,000. The average 30 year interest rate was 4% which we will take into account as well. Placing $100,000 in a home that was worth $410,000 (which would be about 25% down even though you could have put as little as 3.5% down depending on your needs). The median home sales price in Los Angeles County as of 2022 is listed at or around $770,000 from multiple sources. Let's take a look at how much Home Equity you would have and how much that amount of money would have been worth in 2013 to see how much you gained from investing your money in real estate.
If you had bought in Jan of 2013 with $100k down at a 4% interest rate you would have $173,908.50 in home equity. Now add that to the equity earned through appreciation and inflation of the median home price which was $770,000 in 2022
$770,000 (2022 median home price) - $410,000 (2012 median home price) = $360,000 (equity earned through appreciation and inflation) + $173,908.50 (equity earned through pay down) = $533,908.50 (total equity)
$533,908.50 in 2023 would have been worth $421,190 in 2012 minus the $100,000 (original investment) = $321,190 net gain
$321,190 / $100,000 = 3.2119 or approximately a 321% gain over 10 years
In a Savings Account earning 4% per year:
$100,000 earning 4% per year compounding in a Savings Account (which is generous) would leave you with $148,024.43 in 2022. That amount of money would be worth $116,773 in 2012 because of Inflation.
$116,773 - $100,000 (original investment) = $16,773
$16,773 / $100,000 = 0.1677 or approximately a 17% gain over 10 years.
Summary:
I am using the median home price as an example so you can see that there would have been an additional 304% net gain on the investment if your money had been invested in a Los Angeles County home rather than being kept in a savings account or other comparable investment vehicle. Now of course there are going to be examples of properties that have gained more/less than this based on price, type of home and area so I went with the median home value to be as fair and impartial as possible. This example does not include the tax benefits of owning your own home, adding value to the home through improvements/remodeling/ADU's, or any other benefit one might gain from owning their own home. It is purely to show you how great of an investment owning a own home can be in Los Angeles county over a 10 year period.
ps. Please give me a call when you think of someone looking to buy a home, sell their home, or invest in real estate. I look forward to assisting in any way possible and being your real estate resource.
