Does USA Help Families Generate Wealth?
First, let’s get a concrete look at these houses in southern Hartford, and get an idea of their current market values. The map below separates the higher value homes and lower value homes, and centers on mean value homes. The more pronounced reds and oranges indicate the houses we are especially interested in studying, as they lie close to the median price of the south Hartford USA homes.
Map 1: Geographic location of USA homes in southern Hartford and their current values. Explore the map here.
The data regarding the value of single family USA homes in south Hartford tells us that a lot about home values. Over 85% of the USA homes in south Hartford fall within a range of $66,000, and the median falls right in the middle of this range. The histogram below in Chart 1 shows the distribution of home prices in Hartford. The results of this chart are encouraging, as it shows that many homes exist within the two buckets covering a range of $200k to $266k, and the median as referenced above sits at $233k, neatly in the middle of this range. This means data we find about median households within the is very likely to be applicable to much of the sample size, and more meaningful conclusions can be made.
Chart 1: USA Home prices in South Hartford are very consistent, and mostly fall very close to the median.
To put these homes into the context of the USA program itself, we need to estimate what the Allowable USA resale price for each of these homes would look like. However, this calculation relies on historical data that is not available for all the homes, so the dataset is smaller here. This is because calculating the allowable USA resale price requires the original purchase price of the home. From the sample of 41 homes in Chart 1, 30±2 year sale data was only available for 19. More details on this can be found in the methodology section.
Chart 2: The consistencies seen in Chart 1 are present here with USA resale prices, where 17 out of 19 resale values fall between $130,000 and $210,000.
We next need to look into whether or not owners of these homes are gaining wealth over time. To do this we mapped the data to show houses that showed the gains or losses a family might have made after fully paying off a 30 year mortgage with adjusted USA sale prices and allowable resale values. Below are two example homes from our sample in Chart 2: H2 and H35. H2’s sale price 30 years ago was $38,900. With some help from Zillow’s mortgage calculator, we estimated that over the course of a 30 year mortgage, this homeowner would have invested $134,640 into the home. The estimated current USA resale price for this home is $147,980. This means that if the owner sells the house right now, they would make $147,980 - $134,640 = $13,340 in additional profit. This homeowner would make 9.91% more than they invested. Over 30 years, this house has made them money.
Now let’s look at H35. The 1995 sale price was $80,000 and the estimated 30 year mortgage payments amount to $238,320. The estimated allowable USA resale price for this home is $169,080. This means that if sold now, the owner would make back $69,240 less than what they invested into the home, or a -29.05% return on investment. Over the 30 years of mortgage payments, the owner has gained complete ownership of the house, but will have to wait many more years before the house price appreciates enough for them to break even on the money they spent on the mortgage.
Let’s now apply this concept to the rest of the houses in the sample from Chart 2. In the map below the red arrows indicate a house that has invested more into the house than they can sell it for - like H35 - and the green arrows indicate houses that are more valuable than the 30 year mortgage investment - like H2. The results of this map tell us that the estimated investment put into that house; accumulated over a 30 year mortgage with a 20% down payment; generally outweighs the estimated USA resale value of the house. It is important to remember however, that as we have mentioned, homeownership in general is a better option than renting. Even though most of these USA homeowners will lose money if they sell the house immediately after paying off the 30 year mortgage, holding on to the house means they have ownership. This is something that can be passed on generationally and will generally continue to appreciate in value. Rental tenants cannot attain this.
Map 2: After a standard 30 year mortgage is paid off, USA homeowners are far more likely to have invested more money into the home than it is allowed to be resold for assuming no capital improvements, with an average deficit of -17.78%. However, this deficit will decrease over time as each home is likely to appreciate in value over time, making net-positive wealth possible in the extended long-term. A good option for building generational wealth. Explore the map here.
Chart 3: This graph shows the change in median price over 30 years. A fit to the data shows that the median rental price increases at a rate of 3.1% per year over the 30 years depicted. Meaning that someone who was renting for 30 years would be paying nearly 3 times the rent in the last year as in the first year. In contrast, a homeowner with a fixed interest loan would pay the same amount per month on a 30 year fixed mortgage.
Chart 4: This graph depicts the average rental versus average mortgage payments over 30 years. While monthly rent and mortgage payment were comparable in 1995 because the mortgage payments were fixed, over 30 years the rent total payments were much higher than that of the mortgage payments. This graph shows that not only does the homeowner pay less in total mortgage than the renter would pay; in addition the homeowner gains wealth due to the equity of the house.