New Record High Prices: Discover How Much Cash Your Home May Be Worth
Home prices are on the rise in many parts of the country after a decline last year. This signifies the recovery of lost equity for homeowners.
In June, home prices reached record highs in 60% of U.S. markets, according to a forthcoming report from Black Knight. The national home price index surpassed last year’s levels by 0.8%, displaying stronger annual growth compared to May.
Nearly all major markets experienced month-to-month gains, resulting in an overall index increase of 0.67% from May to June.
The surge in home prices is driven by a severe shortage of supply compared to the current demand. Homeowners are reluctant to sell their homes due to higher mortgage rates, as they do not want to purchase new properties at elevated rates.
As a result, homeowners have regained wealth. Home equity levels are now only 3% lower than the peak of last year.
Total equity has exceeded $16 trillion, with tappable equity (the amount lenders typically allow borrowers to withdraw while maintaining 20% equity) reaching $10.5 trillion. This translates to approximately $200,000 in available cash for each homeowner.
Consequently, the number of homeowners with negative equity (owing more on their homes than their current value) is minuscule in today’s market. Only 344,000 homeowners fall into this category, which is a significant improvement compared to pre-pandemic levels in 2019.
Although the number has increased by 70% compared to the previous year, the current situation remains far better. Just 3.9% of homeowners have less than 10% equity, down from 6.6% in 2019, according to Andy Walden, Vice President of Enterprise Research Strategy at Black Knight.
However, the positive developments for current homeowners have led to decreased affordability for potential buyers. Affordability currently stands at a 37-year low.
To illustrate, current homeowners with mortgages at rates between 3% and 4% require only 21% of the median household income to cover the average monthly mortgage payment (principal and interest). On the other hand, prospective buyers today may need to allocate over 36% of their income to accommodate higher home prices and interest rates.
Mortgage rates have risen significantly, with the average rate for a 30-year fixed mortgage reaching 7.2%, compared to around 3% just two years ago.
Walden stated that the current record-low seriously delinquent mortgages can be attributed to multiple factors, including the minimal income required by existing homeowners to meet their mortgage obligations, the high credit quality of mortgage holders nowadays, and the industry’s strong emphasis on loss mitigation.