Debunking The Housing Crash: Record Amounts Of Home Equity
The is the fifth article in our “Debunking the Housing Crash” series.
COVID-19 is one of the most deflationary global events to hit the earth since the meteor that took out the dinosaurs. When much of the United States and many other countries began enforcing stay-at-home orders, the economies of the world came to a grinding halt.
How is it then, that a deflationary event of this magnitude could not trigger a housing crash in the U.S.?
As deflationary of an event as COVID-19 has been globally, there are equal and potentially greater inflationary pressures currently pushing U.S. housing prices higher than they are today.
This series explores each of these pressures in detail.
Reason #5: Homeowners are Sitting on Record Amounts of Home Equity
According to CoreLogic, U.S. homeowners gained 6.5% in home equity over the last twelve months. Looking back to 2010, the average homeowner gained $106,000 in equity.
Homeowners today are sitting on record amounts of equity and have not been using their homes as ATM machines with massive cash out refinances and home equity lines of credit.
Today, 87% of homeowners have at least 20% equity in their homes and 95% have at least 10% equity.
The CoreLogic chart below shows the percentage of homeowners and the percentage of home equity. We can see the vast majority of homeowners have built up significant equity and are not “equity stripping” like they were prior to the 2008 real estate crash.
Somewhat surprising to me is the staggering number of mortgage-free homes in the U.S. Approximately 42.1% of homeowners own their homes free and clear, and the average equity in homes with a mortgage is estimated by CoreLogic to be $177,000.
This all goes to show that U.S. homeowners are not overly leveraged like they were when we entered the last recession and maybe more importantly, this time we have strong demographic trends in our favor instead of working against us.
Conclusion
Demographics and the homeownership rate both indicate we are going to be seeing more first-time homebuyers entering the market than any other time in history. Meanwhile, the number of new homes being built is crashing in the wake of COVID-19. After a decade of new-construction levels that are significantly lower than new household formations, inventory of new and existing homes seems likely to continue the trend toward record housing inventory shortages, multiple offer situations, and more buyers than sellers in most U.S. markets (excluding high cost-of-living areas and areas hit particularly hard by COVID-19).
If you having been thinking about buying real estate, now is the perfect time to purchase a nice home in a great neighborhood that is likely to see future economic prosperity and growth. It’s possible for you to jump into the market and allow time and the trend of 5% home appreciation, which has been consistent over the last fifty years, to work for you and build your net worth.
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