June 21, 2023
When you look at the numbers today, the one thing that stands out is the strength of this housing market. It is clear that this is one of the most foundationally strong housing markets of our lifetime – if not the strongest housing market of our lifetime. Here are two fundamentals that prove this point.
1. The Current Mortgage Rate on Existing Mortgages
First, let’s look at the current rate on existing mortgages. According to the Federal Housing Finance Agency (FHFA), as of the fourth quarter of last year, over 80% of existing mortgages have a rate below 5%. That’s significant. Furthermore, over 50% of mortgages have a rate below 4% (see graph below):
There’s a lot of discussion in today’s media about a potential foreclosure crisis or a rise of homeowners defaulting on their loans. But consider this, homeowners with such good mortgage rates are very likely going to work as hard as they can to keep that mortgage and stay in their homes. That’s the result of the fact they can’t go out and buy another house, or even rent an apartment, and pay what they do today. Their current mortgage payment is distinctly more affordable. Even if owners downsize, with today’s higher mortgage rates, it could still cost more.
Here’s why this gives the housing market such a solid foundation today. Having an abundance of homeowners with such low mortgage rates helps to avoid a crisis with a flood of foreclosures coming to market like there was back in 2008.
2. The Amount of Homeowner Equity
Second, Americans hold tremendous equity right now. According to the Census and ATTOM, roughly two-thirds (around 68%) of homeowners have either paid off their mortgage or have at least 50% equity (see chart below):
In the industry, the term for this is equity rich. This is significant because reflecting back to 2008, some people had to make the difficult decision to walk away from their homes because they owed more on the home than it was worth.
This time, things are dramatically different. Today, many homeowners have built up much equity over the past few years alone. And, when homeowners have that much equity, it helps avoid another wave of distressed properties coming onto the market like as did in the 2008 crash. It also creates an extremely strong foundation for today’s housing market.
Bottom Line
We are in one of the most fundamentally strong housing markets of our lifetime because many homeowners will choose to keep their current mortgage rate and their tremendous amount of equity. This is yet another reason things are inherently different than in 2008. For more in depth information on the housing market in your area or to discuss the future sale or purchase of a new home, let’s connect to review your specific requirements and desires.
Courtesy of: Keeping Current Matters