First Person: A Run-Up in Housing Values Gives Us $100,000 in Equity

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A recent run-up in home values in my Florida neighborhood means we are finally experiencing what it means to have equity in our home, although it's just "on paper." I'm reminded of the dot.com bubble of the '90s when a lot of millionaires used to talk about how they were rich on paper. That's because few people wanted to sell during the stock market bubble so their gains were only evidenced by brokerage account statements. Likewise, we aren't in any hurry to sell. Looking back, I'm glad we were underwater on our mortgage during the Great Recession because it taught us valuable financial lessons.

Buying and holding real estate

During the housing bubble, I took a buy-and-hold approach to real estate. I lost $100,000 in theory only because I didn't sell my Florida home when I was underwater on my mortgage. According to a recent MarketWatch article, homeowners lost the most money in Florida as well as California, Nevada, Arizona and Maryland. Although some experts claim it will be difficult to recover from after the housing collapse, I disagree. We went from having about $100,000 negative equity in our home to having positive equity of the same amount in the past 2 years.

Forced into good financial habits

During the Great Recession, my husband and I were essentially forced into better financial habits. We couldn't take out a home equity line of credit because we had negative equity in our house, owing more on our mortgage than our home was worth. According to MarketWatch, new Census Bureau data shows homes lost 9 percent of their values between the Great Recession and the post-recession periods. Homes that were worth $174,600 in 2007 to 2009 were worth $174,600 in 2010 to 2012. Florida was hit a lot harder than that. Our home went from being worth about the national average of about $200,000 to half as much at about $100,000.

Bouncing back a lot higher

Just as Florida was hit harder by the housing crash, it is also bouncing back with greater buoyancy. Experts say the median sales price of homes increased about 12 percent compared to a year ago. In Miami, home values are up 21 percent compared to last year. In my neighborhood, investors are buying the last remaining foreclosures for about $100,000. After fixing up the homes, they are flipping them for people willing to pay "retail price" for houses. The higher sales prices have propped up home values so renovated homes such as mine are now selling for about $200,000. We could get as much as we originally paid on our home 8 years ago.

Making my own equity

Since we owe $94,000 on our mortgage, we have more than $100,000 equity in our house at this time. It's possible the value of our home will plummet again. By paying our home off in 15 years instead of 30, we are creating our own equity that isn't dependent on a high home appraisal. If the value of our home doesn't maintain the $200,000 mark when we retire, we won't be able to walk away with our original investment. I can't live in my brokerage account, but my real estate purchase gives me a place to call home.

I learned the same lesson from the dot.com bubble as I learned from the housing bubble. It's not a good idea to invest in real estate or stocks without a long time horizon. Being underwater on my mortgage was one of the best financial problems I ever had because it forced me to treat my home like a long-term investment. And, it's turning out to be a handsome investment at that.

More from this contributor:

Tricks to Pay Down our Mortgage

I'm Happy in our Smaller Home

I'm Not Using My Home as an ATM
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