Rising Home Prices and Falling Mortgage Debt

  • Today’s homeowners are in the best financial shape in recent memory. Home prices have been rising while overall mortgage debt levels have been falling. As a result the net housing equity has nearly doubled in the past four years. This equity gain, which can be used as a down payment, will provide a greater number of existing homeowners to trade-up.
  • The overall value of all real estate holdings of every household combined in America reached $21.1 trillion in the first quarter of 2015, up from $16 trillion in 2011. Moreover, this equity gain is evidently not being squandered to buy SUVs or flat-screen TVs since the overall mortgage debt has been falling. Houses are no longer being viewed as ATMs and that’s a good thing.
  • The combined effect of rising asset value and falling debt value has pushed up net equity position of homeowners to $12 trillion, which has essentially doubled in the past four years. Homeowners are clearly happier as result. Given that many homeowners use housing equity as source of down payment for the next home purchase we should expect an increasing number of them wanting to list their home in order to trade-up (or even trade-down).
  • There are many reasons for moving into another home: better schools, needing a larger home after having babies, job relocation, enhanced status, retirement, etc. Historically, recent home sellers had stayed in their home for about six to seven years before bolting for a new place. In 2014, however, a typical home seller had stayed put for ten years. That implies a sizable pent-up desire for wanting to relocate. Now, these home sellers have the equity to make that move.
  • Not all is fine, however. The first-time home buyers have still not shown up to the market place. Their share of total home sales, according to REALTOR® survey, is only 30 percent so far this year. It should be closer to 40 percent in more normal circumstances. Rising home values has hurt the affordability for those who are not homeowners, like the first-time buyers. In addition, mortgage credit availability has been excessively tight. As a result the homeownership rate is at a 25-year low, which sadly is contributing to America becoming more unequal in wealth distribution.

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Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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