Growing equity gives real estate markets a boost

Posted by Tom Kalinski Founder RE/MAX of Boulder on Wednesday, July 22nd, 2015 at 11:39am.

Homeowners who thought their homes may never again be worth as much as they paid for them – much less gain equity – in their lifetime may have lived to see that day.

According to RealtyTrac, although the market hasn’t recovered completely, odds are homeowners or those who have invested in real estate are richer than they were a few years ago.

Homeowner equity peaked in 2005 when the value of U.S. homes — market value less debt — equaled a hefty $13.1 trillion, RealtyTrac reports. But thanks to the financial crisis, homeowner equity dropped to $6.4 trillion by 2011 and millions of U.S. homeowners saw half of their equity dissipate.

But it wasn’t just a concern on paper because, without equity, borrowers could not refinance as rates fell and they couldn’t sell without bringing cash to closing, RealtyTrac reports. They were left with short sales, foreclosures and staying in place as options, with more than 7 million homes lost to foreclosure.

However, since the low point in 2011, equity climbed back up to $11.3 trillion in 2014 – an increase of $4.9 trillion in just three years, RealtyTrac says, noting that it’s possible that equity, as measured on a cash basis, might return to 2005 levels in the next year or so.

With more equity, qualified homeowners can borrow against their homes, borrow more than they could a few years ago, or none of the above and avoid additional debt.

However, homeowners 62 and older actually need even more equity to get a reverse mortgage since the FHA’s rules have tightened, and nearly all reverse mortgages are originated with FHA backing, RealtyTrac reports.

The provider of comprehensive housing data and analysis says that while the increase in equity is good news, the housing sector is still on shaky ground.

It notes that, according to the National Association of Realtors, first quarter home prices were still down in 25 metro area while up in 148, indicating that those markets are still struggling.

Also, first-time buyers are only making up about 32 percent of the market compared with the 40 percent they historically make up, so there’s still room to grow.

“More first-time buyers are expected to enter the market in coming months, but the overall share climbing higher will depend on how fast rates and prices rise,” says Lawrence Yun, NAR’s chief economist.

And it’s the rising prices that will keep more first-time buyers from entering the market, and the lack of those buyers will keep prices from rising more, RealtyTrac reports.

For a more in depth look at what the improving equity of homes means, read the complete RealtyTrac article at http://www.realtytrac.com/news/home-prices-and-sales/returning-equity-boosts-real-estate-markets/.

 

Tom Kalinski 
Owner and Founder
RE/MAX of Boulder
303-441-5620
tomkalinski33@gmail.com

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