Home Equity and The Pandemic Driven Housing Boom
As home purchasers have experienced, home prices have remained incredibly strong during the pandemic due to increased demand and low supply. Several reasons are attributable to this housing boom. One, “work-school culture” has changed. The division between work and school being outside of the home blurred as more and more of us were able to work from home and schooled our children from home. Two, mortgage rates which set record lows, enabled more and more of us to purchase homes. Yet, since supply is tight, home pricing is rising quickly.
Home Equity: Effect of Increased Prices
As prices rise, home equity increases too. According to CoreLogic, homeowners with mortgages, representing about 63% of all properties, have seen their equity increase by 10.8%. This translates to a collective $1 trillion in gained equity, or an average of $17,000 per homeowner—the largest gain in more than six years.
While increased home equity has contributed to historically low foreclosure rates, mortgage forbearance programs, placed at the start of the pandemic, also has lowered foreclosures. Increased home equity allows for borrowers who are financially struggling to sell their home and potentially make a profit, without having to do a short sale.
Some economists foresee the strong housing market to slow down in 2021 as mortgage interest rates unlikely will fall further, exodus from cities decrease, and credit conditions tighten. Even if home price gains ease, prices are unlikely to weaken dramatically because of the supply and demand imbalance. This helps those borrowers who have the lease amount of equity.
What does this all mean?
Housing is dependent upon market forces. Low interest rates, supply, and demand each effect the availability and affordability of home sales. How long we are able to sustain this housing boom and the boom’s effect on our home equity as well as, ultimately, the greater economy remains to be seen.
From the trenches,