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Homeowner Equity Rises As Housing Prices Remain High

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Man's hand with house keys through a hole in blue paper | Homeowner Equity Rises As Housing Prices Remain High | featured

With house prices soaring all across the US, homeowner equity is rising. As a result, American homeowners are getting richer and richer. And there’s no sign of slowing down. 

RELATED: US Housing Sales Boom Will Last Until 2021

Homeowner Equity Jumps Higher

Homeowners, especially those with mortgages, saw equities rise by 20%. Mortgage-backed purchases account for around 62% of all American-owner properties.

These homeowners gained collectively around $2 trillion, or $33,400 per borrower. Rising house prices are to blame for the increase in equity.

In fact, CoreLogic said house prices are up 11% in March from a year earlier. This is the sharpest recorded gain in housing since 2006. Then, price gain rose even much higher at 13% during April. 

Meanwhile, the pandemic spurred the high demand for homes, especially those away from major urban centers. An already low supply of available houses led to bidding wars all over the US, pushing prices even higher.

Then, as the Federal Reserve pegged interest rates as near-zero levels, even more Americans jumped at the chance to buy houses, triggering further price increases. 

Homeowner Equity

Frank Martell, CEO of CoreLogic, said that homeowner equity is at its highest levels at this point. “Homeowner equity has more than doubled over the past decade and become a crucial buffer for many weathering the challenges of the pandemic.

These gains have become an important financial tool and boosted consumer confidence in the U.S. housing market, especially for older homeowners and baby boomers who’ve experienced years of price appreciation.”

Currently, there are over 2 million homeowners enrolled in COVID-related mortgage bailout programs. This is according to information provided by the Black Knight real estate data company.

As these bailout programs begin to lapse, homeowner equity can help weather the storm. Those who still cannot afford payment can sell their property and keep a tidy profit.

In addition, CoreLogic Chief Economist Frank Nothaft added that this cushion “reduces the likelihood for large numbers of distressed sales of homeowners to emerge from forbearance” when the time comes. Nothaft added that the average homeowner now has about $216,000 in equity.

Negative Equity

Consequently, mortgage borrowers in a negative equity position are lower. The number of homeowners with negative worth decreased by 7% between the fourth quarter of 2020 to the first quarter of 2021.

Annually, the number of “underwater” homes fell by 24%. With prices continuing to rise, home buyers will soon hit an affordability wall.

This is when prices become too high for the average buyer to afford. Once this happens, economists expect prices to cool off to sustain demand. 

However, many do not believe that home prices will eventually crash. Demand remains strong and the numbers suggest it continues to stay in demand.

When prices go back to reasonable rates, buyers will return. Unlike the last time home prices crashed, present-day mortgage underwriting is more stringent.

Watch the InsideNews video report that Homeowner equity is soaring as house prices rise:

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