If you’re in the market to buy or sell a home, there’s no doubt that you’ve heard about the strong housing market that’s currently underway. But what exactly makes this housing market so strong? In this blog post, we’ll explore two fundamental aspects that highlight the strength of today’s housing market.
1. The Current Mortgage Rate on Existing Mortgages
The first fundamental aspect that highlights the strength of today’s real estate market is current mortgage rates for existing mortgages. According to the Federal Housing Finance Agency (FHFA), more than 80% of existing mortgages have interest rates below 5%, and more than 5% of all mortgages have interest rates below 4%. These mortgage rates are at historically low levels, providing homeowners with affordable mortgage payments they want to keep up with. (see graph below):
Homeowners with lower mortgage rates are likely to do what they can to keep their mortgages, even when faced with the possibility of foreclosure or default on their loans. You understand that finding another house or renting an apartment with a similar mortgage rate is unlikely. That’s why so many homeowners with low mortgage rates can help avoid a 2008-like wave of foreclosures.
The second fundamental aspect underscoring the strength of today’s housing market is the rise in home equity. The housing market crash of 2008 sent many homeowners into negative equity on their mortgages. However, as the housing market recovered, many homeowners saw their home equity increase. Home equity is the difference between what you owe on your mortgage and what your home is selling for in the current market.
Increasing home equity is important because it provides homeowners with a financial buffer that can be used for emergencies or major purchases like a new car, home improvement projects, or children’s schooling. Homeowners with positive equity also have the opportunity to sell their home for a profit if they decide to move to a new location.
2. The Amount of Homeowner Equity
We must first understand what justice is. Simply put, equity is the difference between your home’s market value and the balance on your mortgage.
According to the Census and ATTOM, approximately 68% of homeowners in the United States have paid off their mortgage or own at least 50% of their home equity. This means these homeowners are considered “equity-rich”. In the event of a financial emergency, such as a job loss or medical emergency, homeowners with significant equity can access that equity by selling their home or by taking out a home equity loan or line of credit. (see chart below):
The importance of homeowner equity becomes even more apparent when we compare this to the housing market crash of 2008. At the time, many homeowners defaulted on their mortgages, meaning they owed more than their homes were worth. That led to a wave of distressed assets hitting the market, further depressing property prices.
However, today’s market is fundamentally different, with homeowners accumulating so much equity over the past few years. This asset provides a safety net that allows homeowners to keep their home even during times of economic hardship. It also acts as a buffer against potential falls in property prices.
Home equity not only benefits individual homeowners, but the entire housing market as well. It creates stability in the market when homeowners have a lot of equity. They are less likely to default on their mortgages, which helps prevent a flood of distressed assets from flooding the market. This in turn helps to stabilize property prices and prevent another housing bubble from forming.
The amount of homeowner equity is a key factor in today’s real estate market. “Equity-rich provides homeowners with financial security and stability while helping to prevent another wave of distressed assets from entering the market. The fact that so many homeowners have amassed substantial assets is a testament to the strength of today’s economy and real estate market. Looking ahead, we can trust that the fundamentals of the real estate market are strong and stable.