Home Equity Continues to Soar: Homeowners Gained $26K on Average

While general economic indicators might be stagnating or even declining, it’s clear that the housing market continues to thrive in many areas of the country. Homeowners saw an increase in their home equity during 2021, reaching 16.2%, which translates into increases of $26,300 on average. Equity can be very important for homeowners because it allows them a range of opportunities when it comes to refinancing or selling their primary residence.

It’s hard to overstate the impact of these trends on the housing market. Higher property values and reduced debt put hundreds of thousands of homeowners in a position to take advantage of surging home equity gains. In fact, the strong market had a significant effect on homeowners’ ability to tap that wealth. Homeowners with positive equity are three times as likely to cash out their homes than those with no equity.

The home equity gains were notably higher than what many finance experts had projected. After a dip, home values have risen in the 5-year period since the Great Recession, and equity has added $10.6 trillion to mortgage security holdings. While many rules have changed since the recession, some of the biggest changes have been to the home equity line of credit (HELOC) industry.

Mortgage Rates are increasing more slowly after the February 2021 spike

Mortgage rates rose faster in February than in any other month since the start of 2017, yet they’re still lower than they were a year ago.  Mortgage rates fell during the last week of February after three weeks of consecutive increases. The annual rate on 30-year, fixed-rate mortgages has dropped significantly to 3.125% compared to 4.38% in February, according to Freddie Mac.

So far this year, the 30-year fixed-rate mortgage has risen by more than 5% despite an expectation from most economists and market watchers that had it rising half as much. This faster than expected rise in rates is surprising because unemployment rates have stayed around 4%, and inflation hasn’t broken through the Fed’s target of 2%.

Borrowers have certainly started feeling the heat from rising rates, but it’s not seeming to affect the general mortgage application process or homebuying season, as it’s slowly easing back downward.

Mortgage rates posted their largest single-month increase since the financial crisis at the beginning of the year. That spike in interest rates raised many eyebrows, but buyers and homeowners who act early could benefit from lower rates that should accompany a cooling market. This month’s numbers from mortgage giant Freddie Mac paint a clearer picture of how markets reacted to February’s jump and what might be expected if mortgage rates continue to move higher.

Home price growth is likely to slow down this year after a record high

The declining competition for a smaller supply of sellers is driving home prices up to levels not seen since the 2008 Recession. In addition, investors are adding fuel to the market with their small but steady share of sales. The year 2020 was the fourth consecutive year of consistent price increases and sales volume growth, though this strong performance is now expected to slow noticeably by the last half of 2021. 

Buyers may see more choice at the lower price points and a decrease in median prices. As we reach the spring homebuying season, we could see first-time homebuyers catching up with pent-up demand and potential buyers feeling more comfortable about their chances of finding a new home (or maybe a foreclosure) that meets their criteria.

April sales numbers, which come out in May and often represent the highest level of activity for the year, will help set the tone for how much a historically tight market softens this year.