There are many homeowners today who are still recovering from the fiscal shock and losses of the 2008 housing crisis and resulting collapse. Some lost everything and some were able to hold onto their property, barely. Those who were able to hold on are now seeing their equity finally being built up to surpass the 2006 bubble. The latest reports are showing that Q2 2018’s housing market hit an all time high, soaring past $6 trillion dollars in equity values for the first time ever. To put that in perspective, $6 trillion is about one third the value of the United States’ current GDP of $19 trillion and more than the GDP of Germany and Japan combined!
We have a lot of value built up in our real estate market right now and many of us are just sitting on it and holding out for a rainy day before cashing in. Speculation on reasons why we are waiting is coming from many angles. First, people are just seeing equity in their properties for the first time in a decade and don’t want to let it go just yet. Also, Feds keeps raising interest rates which is reflected in housing and lending interest rates as well. As these rates keep climbing, people are less inclined to sell their current holdings and reinvest into something new at a higher interest rate.
Secondly, many in this economy are young first-time homeowners who have benefited from buying their first house within the last 4 or 5 years while prices were soaring and interest rates were at previously unheard of lows. We are seeing the receding waters pull back into the ocean after a giant wave of homebuying hit. Today’s buyers are more cautious and are hampered by higher interest rates which makes them less likely to buy anything that is at or above the current market (high) values. They are simply waiting for a bargain and have the benefit of hindsight to help them stave off unnecessary and excess buying. Gone are the days of recent high school grads with part-time work signing papers on spacious, brand new McMansions in the suburbs.
If you’re looking to invest in a new piece of property, now is still a good time, but keep an eye out for a bargain and shop around to as many mortgage brokers as you can in order to secure a good interest rate. The market is strong, but you’ll have to be patient. And, don’t be afraid to take advantage of the equity you currently have. If you’re not going to buy a new property, then think about investing that earned equity into your current property to increase its value for the future. That way as a seller you can win both ways: you get a nicer house with upgrades now and you get more money in your pocket later.
Newcomer’s Corner. What is Home Equity?
For those new readers joining us today, we thought we would take a moment to enlighten and inform you on exactly what we are talking about when we are talking about home equity. Home equity is the market value of a homeowner’s unencumbered interest in their real property. That is, the difference between the home’s fair market value and the outstanding balance of all liens on the property. The property’s equity increases as the debtor makes payments against the mortgage balance, or as the property value appreciates.