Homeownership is the largest source of wealth among families, with the median value of their primary residence worth about ten times the median value of their
financial assets. Home equity is gained through price appreciation and by paying off the mortgage through principal payments.
Over the past 10 years, at the national level, a homeowner who purchased a single-family existing home would have gained $229,400 in home equity if the
home were sold at the median sales price of $360,700 in the 4th quarter of 2021. Home prices rose at a strong annual pace of 8.8% during this period.
Home prices have increased even more steeply over the past five years, at an annual pace of 9.7%. A homeowner who purchased a typical home five years ago would have gained $125,300 from just price appreciation alone.
Large Home Equity Gains Not Likely Impacted By Rising Mortgage Rates
With mortgage rates rising, there is concern that demand and prices will fall. NAR expects home prices to continue rising, although at a slower pace of nearly 10% by
the end of 2022 and about 5% for 2023.
Home prices are not likely to fall as they did during the Great Recession because there is no incentive for home sellers to sell their homes at a loss.
The level of adjustable-rate mortgages is low, with ARMs accounting for less than 10% of mortgage applications since 2008 compared to as high as 35%
Supply conditions are still very tight, with the inventory of homes for sale equivalent to 2.2 months as of April 2022.
Home construction costs are also still rising, up 18% yearover-year as of April, according to the U.S. Census Bureau’s construction price index.
However, even if home prices were to fall, it will take a massive dip in prices to wipe out home equity gains.
When you’re ready to buy or sell, call me to discuss the best offer for your next home or the list price on your present home.