Housing wealth hits record highs of $1.2 trillion, but there are signs that the market is slowing

Homes in Hercules, California, US, on Tuesday, May 31, 2022. Home buyers face a deteriorating affordability situation with mortgage rates hovering around the highest levels in more than a decade.

David Paul Morris | Bloomberg | Getty Images

Homeowners make money, which is what keeps coming. Two years of rapid rise in housing prices pushed the country’s collective real estate stocks to new highs.

The amount of money mortgage holders can withdraw from their homes while holding 20% ​​of the equity rose by an unprecedented $1.2 trillion in the first quarter of this year, according to new analysis from Black Knight, a mortgage software and analytics company. This is the largest quarterly increase since the company began tracking the number in 2005.

Alleged equity of mortgage holders rose 34%, or $2.8 trillion, in April compared to a year ago. Total clickable equity was $11 trillion, or double the previous peak in 2006. This works out to an average of about $207,000 per home owner.

According to Black Knight, borrowers with high credit maintain significantly lower mortgage rates on clickable equity. Nearly three-quarters of these borrowers have rates below 4%. The current rate on a 30-year fixed-rate mortgage is over 5%.

The flip side to rising home prices is that potential buyers are priced outside the market. Mortgage rates have also risen sharply, putting home ownership out of reach for some.

“It really is a bifurcated landscape – one that is becoming more challenging than ever for those looking to buy a home, but at the same time a boon for those who already own and have seen their housing wealth increase exponentially over the past couple of years,” said Ben Grabowski. , president of Black Knight Data & Analytics. “Depending on where you stand, this could be the best or worst of all possible markets.”

However, the housing market is showing slight signs of slowing down. Home prices, as estimated by Black Knight in April, rose 19.9% ​​year over year, down from a 20.4% increase in March. Slowing growth could be an early indicator of the impact of higher rates.

“The April dip is likely to be a sign of a slowdown caused by the modest price increases in late 2021 and early 2022 when rates first started rising,” Grabowski said. “It will take time for interest rate hikes in March and April 2022 to show up in repeat sales indexes.”

Historically, higher interest rates have cooled home prices, but supply is still pathetically low in the current market. Active listings are 67% lower than pre-pandemic levels, with about 820,000 listings lower than the usual spring season.

Given current market conditions, homeowners are less likely to sell their homes and more likely to take advantage of some of this huge equity for renovations. Equity lines of credit are preferred now, as the owner likely won’t want to refinance their first mortgage at a higher rate, even to withdraw cash.

A recent report from Harvard University’s Joint Center on Housing projected spending on home improvements would increase by about 14% this year.

“Record high home prices, strong home sales, and higher incomes are all contributing to stronger remodeling activity in our nation’s major metro areas, particularly in the South and West,” said Sophia Weeden, a researcher with the Center’s Remodeling Futures program. .

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