Homeowners are more in the money than they have ever been before. Two years of rapid home price appreciation has pushed home equity to new heights. The amount of money homeowners could pull from their equity while still holding 20% equity rose $1.2 trillion in just the first quarter of this year! Mortgage holders tappable equity was up 34% in April year over year. This equated to right around $207,000 per homeowner! This tappable equity is largely held by high-credit borrowers with low interest rates sub 4%. What is the downside?
The downside to rising home values is that prospective buyers are being priced out of the market everyday. With rising mortgage rates, this puts even more pressure on prospects and also makes them uneasy about their higher monthly payment. “It really is a bifurcated landscape – one that grows ever more challenging for those looking to purchase a home but is simultaneously a boon for those who already own and have seen their housing wealth rise substantially over the last couple of years,” said Ben Graboske, president of Black Knight Data & Analytics. “Depending upon where you stand, this could be the best or worst of all possible markets.” The housing market is showing some signs of cooling, however, but is still hot as ever. Home prices were on average, up 19.9% year over year instead of the 20.4% gain we saw in March. April’s decline is most likely due to rising interest rates from the end of 2021 to the beginning of 2022. It will take some time to see cooling off from the most recent interest rate hikes.
Rising interest does historically help with rising home prices, but supply remains insanely low in the current market. Active listings are 67% below pre-pandemic levels, with almost 850,000 fewer listings than the usual spring buying season. Given the current market conditions, homeowners are less likely to sell their homes and more likely to tap some of that vast equity for renovations. Home equity lines of credit are preferable now, as an owner likely wouldn’t want to refinance their first mortgage to a higher rate, even to pull out cash. A recent report from Harvard’s Joint Center for Housing projected home improvement spending to increase by nearly 14% this year.