When you look at the numbers today, the one thing that stands out is the strength of this housing market. In fact, we can see 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. And, to take that one step further, over 50% of mortgages have a rate below 4% (see graph below):
Now, there’s a lot of talk in the media about a potential foreclosure crisis or a rise of homeowners defaulting on their loans, but there is more to consider here. Homeowners with such good mortgage rates are going to work as hard as they can to keep that mortgage and stay in their homes. That’s because 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 more affordable. Even if they downsize, with today’s higher mortgage rates, it could cost more.
This gives the housing market such a solid foundation today because having so many homeowners with such low mortgage rates helps us 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 are sitting on 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 important because if you think 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.
But this time, things are different because homeowners have built up so much equity over the past few years alone. And, when homeowners have that much equity, it helps us avoid another wave of distressed properties coming onto the market like we saw during the crash. It also creates an extremely strong foundation for today’s housing market.
The Mullin Message
We are in one of the most foundationally strong housing markets of our lifetime because homeowners are going to fight to keep their current mortgage rate and they have a tremendous amount of equity. Home prices move based on ONE thing - Supply and Demand. These dynamics are keeping supply relatively low and demand relatively high.
This is yet another reason things are fundamentally different than in 2008. If you're considering change and just not quite yet sure what's right for you or where to start, reach out to us today. We won't tell you what you should or shouldn't do and you won't be wasting our time if you're not quite ready. We WILL however, ask you great questions and provide you facts and data relevant to you to help you start planning your ideal real estate lifestyle and wealth development strategy.