Homeowner Wealth is 40 times higher than Renters

Proof of Concept: National Association of Realtors

Real Estate Equity Estimator

Financial stability through homeownership involves building wealth over time by paying down a mortgage, benefiting from potential property appreciation, and enjoying stable housing costs. Homeownership also offers tax advantages and the potential to pass down generational wealth, contributing to long-term financial security.

  • How does real estate, specifically primary residences, generate wealth, and what methods can be used to visualize the correlation between FHFA House Price Index data and the wealth generated through property appreciation?

  • Validate a POC which demonstrates the value of converting your existing rent payment to a mortgage. Then enable a user to explore how that monthly payment translates to the 128 neighborhoods of Oakland CA.

  • Where you live or the neighborhood matters for equity generation. Compound interest is a force multiplier.

  • Product Designer, UX Researcher, Data Science

Method

Gather FHFA Home Price Data (Single Family Residences) over a historical 30 years by neighborhood in Oakland, CA. Oakland has a wide range of income level neighborhoods, both highly affluent (Rockridge) and lower income (West Oakland).  As a renters, what are my controlled rent costs over the same time period? What are those equivalent costs as a home owner.

Key Objectives

1. Demonstrate Real Estate Wealth Generation: Investigate and visualize why owning a primary residence is a significant generator of wealth.

2. Visualize FHFA House Price Index Data: Create visual representations that effectively convey the correlation between homeownership and FHFA House Price Index data by neighborhood (Zillow Home Price Index).

3. Hypothesis Testing: Compare the costs involved in renting a "rent-controlled" primary residence over 30 years versus purchasing a home.

The project relies on R Studio for producing this Proof of Concept (POC), which aims to highlight the benefits of transforming rental payments into a mortgage. The primary objective is to empower users to investigate the potential fluctuations in their potential equity, based on monthly payments and the long-term equity accumulation within the context of Oakland, California, encompassing 128 distinct neighborhoods.

Project Steps

1. Data Collection: Gather data related to rent prices, mortgage rates, housing values, FHFA House Price Index data, and neighborhood-specific information for Oakland, CA.

2. POC Development: Build a POC illustrating the financial advantages of converting rent payments into a mortgage, considering factors like long-term equity growth.

3. Data Visualization: Utilize R Studio's data visualization capabilities to create interactive visualizations and charts that depict the correlation between homeownership and FHFA House Price Index data.

4. Equity Generation Analysis: Compare the total costs incurred when renting a "rent-controlled" residence over 30 years versus purchasing a home, including mortgage payments, property taxes, maintenance, and other relevant expenses.

5. Interactive Tool: Develop an interactive tool that allows users to input their specific financial details and explore how their monthly payments might vary across Oakland's neighborhoods.

R Studio

R Studio played a pivotal role in this Proof of Concept (POC) as the primary platform for storing, cleaning, and normalizing the datasets sourced for the project, including Zillow's Home Value Index, offering historical neighborhood-segmented FHFA data, the Consumer Price Index, S&P 500 Index earnings (YOY), and the spatial boundaries of Oakland Neighborhoods provided by the city.

MapBox Spatial Data

Open source resources like MapBox, OpenStreetMap, Snazzy Maps and Leaflet are essential tools for rapid prototyping of spatial data sets and the visual tuning required to highlight the unique data for the neighborhoods of Oakland.

City of Oakland Rent Control

The Oakland Rent Adjustment Ordinance permits landlords to implement annual rent increases, which are determined based on the regional Consumer Price Index (CPI).

This policy ensures that rent adjustments are tied to the rate of inflation in the region, providing a mechanism for landlords to increase rents in a manner that reflects changes in the cost of living while also providing some level of protection for tenants against excessive rent hikes.

Investment of Downpayment

One of the axioms of investing is that the stock market out performs other types of investments, so if you we're to take the downpayment and invest the funds with an average return of the S&P 500, over the same time period based on historical data.

YOY% Median Equity Change

The Zillow Home Value Index (ZHVI) is a metric that provides a smoothed and seasonally adjusted representation of the average home value and market trends within a specific geographic area and housing category. It is designed to capture the typical value for homes falling within the 35th to 65th percentile range in terms of value. This index is a valuable tool for tracking and understanding housing market changes, making it useful for homeowners, real estate professionals, and policymakers to gauge the state of the local real estate market.

TL;DR