After a brief stall in home sales at the start of the coronavirus pandemic, homebuyers came rushing back in so fast that prices never even took a hit. In fact, the gains in prices accelerated quickly, causing home equity to soar even more.
Home equity for homeowners with a mortgage rose 6.6% annually in the second quarter, according to CoreLogic. Collectively, that adds up to a gain of $620 billion, or $9,800 per home. Home values have continued to rise and are now up 5.1% annually, according to Zillow. Price gains accelerated in 48 of the 50 largest metropolitan housing markets across the country.
The reason is twofold: Demand is outpacing supply by a lot, and mortgage rates are sitting near record lows. The latter gives buyers more purchasing power. The total supply of homes for sale was just over 29% lower annually for the week ending Sept. 12, according to Zillow. Homes typically went under contract after just 14 days, which is 14 days faster than one year ago.
In addition, and perhaps even more important in these difficult economic times, the number of mortgaged properties in a negative equity position, where the mortgage is bigger than the value of the home, dropped by 15% annually to just 1.7 million homes, according to CoreLogic. That’s 3% of all mortgages.
This is especially important because some borrowers are now unable to pay their mortgages and could end up having to sell their homes. As long as they have some equity, they would not be forced into foreclosure.
“Homeowners’ balance sheets continue to be bolstered by home price appreciation, which in turn mitigated foreclosure pressures,” said Frank Martell, president and CEO of CoreLogic. “Although the exact contours of the economic recovery remain uncertain, we expect current equity gains, fueled by strong demand for available homes, will continue to support homeowners in the near term.”
So how long can this last? So far real estate agents report no slowdown in demand, even going into the traditionally slower season of the year for housing.
As winter approaches, more people may be looking to upgrade their living situations, either moving out of urban areas or just into larger homes. As long as demand is high and supply is low, home prices will continue to gain. Some, however, argue there is a limit, especially if unemployment remains high.
“In our latest forecast, national home price growth will slow to 0.6% in July 2021 with prices declining in 11 states,” said Frank Nothaft, CoreLogic’s chief economist. “Thus, home equity gains will be negligible next year, with equity loss expected in several markets.”