Rising home prices can be a challenge for aspiring buyers, but homeowners are enjoying the increasing values of their homes. For most families, owning property is the primary way they build wealth.

In the metropolitan area that includes Philadelphia, Camden, and Wilmington, an owner of the typical home gained more than $110,000 in equity if that person lived in the house for five years, according to an analysis the National Association of Realtors released this month. Homeowners build equity, or housing wealth, through price growth and paying off the mortgage. It’s the difference between how much a home is worth and what a homeowner owes.

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Home equity gives repeat buyers a leg up in the housing market compared with most first-time home buyers who don’t have cash to compete. Homeowners also can borrow money against their home’s equity to complete repairs or renovations, pay down student loans or medical bills, start a business, or help pay for their children’s education. Tapping into home equity typically is less expensive than using personal loans and much less expensive than using credit cards.

The potential financial benefits of home ownership become social benefits, “enabling the next generation to step up the economic ladder,” said Gay Cororaton, senior economist and director of housing and commercial research at the National Association of Realtors.

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Robust price growth is driving most of the equity gains homeowners are enjoying now, so people who are in a position to become owners should purchase soon to take advantage, she said, “because home equity builds up over time.” But in the recent strong market, even five years is enough to gain six figures in wealth.

The typical Philadelphia-area homeowner who sold a single-family home in summer 2021 after staying for:

  • five years, gained $112,100 in equity if it was purchased at the median price of $234,800.

  • 10 years, gained $145,800 in equity if it was purchased at the median price of $219,600.

  • 15 years, gained $146,800 in equity if it was purchased at the median price of $236,200.

  • 30 years, gained $314,900 in equity if it was purchased at the median price of $120,200.

Home value, of course, depends on the features, condition, and location of the home. The housing collapse that sparked the Great Recession dented the equity gains of homeowners who purchased about 15 years ago. But, typically, homeowners don’t have to do much to build equity beyond staying in their homes and keeping up with maintenance and repairs so homes can sell.

Homeowners are staying in their properties for a median of eight to 10 years, according to the National Association of Realtors. Usually, homeowners need 15% to 20% equity in their homes before lenders are comfortable granting home equity loans, said Jacob Channel, senior economic analyst at LendingTree.

Using home equity can be a good option for a homeowner with a large expense who doesn’t want to empty out savings, “especially in today’s market where home prices have risen so dramatically in such a small period of time,” he said.

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Nationally, a homeowner who bought a single-family existing home 10 years ago would have added $225,000 in home equity if the home sold in summer 2021 for the median price of $363,100. That’s for a homeowner who had purchased at the median sales price of $169,000, according to the National Association of Realtors.

The association’s calculations assume repayment of the principal of a loan with a 30-year fixed rate with a 10% down payment.

The median sales price for a single-family existing home rose 8.5% annually from summer 2016 through summer 2021.

As prices start to cool off over the next few years from sky-high growth, some people may find that their homes are worth a little less than what they paid, but that’s not necessarily something to worry about, Channel said. Real estate is a long game, and those who hold on to properties for the next 10 or more years should still come out ahead, he said.

Owners who don’t want to stay in their homes more than a few years but who want to take full advantage of building equity can consider renting out their homes, said Robin Olanrewaju, founder of Sound Financial Solutions, a Pennsylvania-based financial counseling company that operates in the tristate area.

“So you still have the ownership and the value of that property that will increase your wealth and the equity that you have in your investment portfolio,” she said. “Most people think it’s an all-or-nothing type of situation. No, you take a look at the assets you have available to you and you figure out the best way to leverage them over a lifetime.”

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As prices continue to rise and homeowners build equity, aspiring buyers also need to be able to afford to purchase the homes that go on the market, which can be increasingly difficult. Wage growth hasn’t kept pace. In the Philadelphia metropolitan area, wages grew 2.8% annually over the last five years, according to a National Association of Realtors analysis. During that time, home sales prices grew 6.7% annually.

“Home ownership is good, but if only the wealthy already and those who have higher income can tap into that, we need to find ways to widen that accessibility to home ownership,” said Cororaton at the National Association of Realtors.

Lack of housing supply continues to drive up prices, she said. So an increase in supply — including the construction of new homes — can help.