Finally, here in the Portland market and across the country home sales numbers are leveling off. The rate of price appreciation is trending towards historically normal averages, and inventory is on the rise. In other words, we are headed into a more normal housing market. This is good news for buyers and seller alike.
Some, however, see these adjustments as red flags and suggest that we are headed towards a repeat of what we experienced in 2008. Let’s take a look at one set of statistics that prove the current market is nothing like the one that preceded the housing crash last decade.
The market meltdown in 2008 was precipitated by unprecedented loosen lending practices compounded with unhealthy levels of mortgage debt. New purchasers were able to “qualify” for mortgages based low-interest variable rate loans with minimal down payments. When payments were adjusted up at the end of the introductory period, these buyers often could not afford the monthly payment. Faced with the fact they couldn’t make the new payment and because they had little if any equity in home … buyers stopped making payments and walked away.
At the same time, existing homeowners were using their homes as ATMs by refinancing and swapping their newfound equity for cash. When prices started to fall, many homeowners found themselves in a negative equity situation (where their mortgage was higher than the value of their home) so they walked away which caused prices to fall even further. As this compounded, home values tanked and even more homeowners found themselves in negative equity situations which caused them to walk away as well, and so a vicious cycle formed.
Today, the equity situation is completely different. According to a new report from ATTOM Data Solutions more than 1-in-4 homes with a mortgage have at least 50% equity. The report explains:
“…nearly 14.5 million U.S. properties were equity rich — where the combined estimated amount of loans secured by the property was 50 percent or less of the property’s estimated market value…The 14.5 million equity rich properties in Q3 2018 represented 25.7 percent of all properties with a mortgage.”
In addition, according to the U.S. Census Bureau, 30.3% of homes in the country have no mortgage on them.
Almost 50% of all homes have at least 50% equity.
If we take both numbers, the 30.3% of all homes without a mortgage and the 17.9% with at least 50% equity (25.7% of the 69.3% of homes with a mortgage), we realize that 48.2% of all homes in the country have at least 50% equity.
Unlike 2008, almost half of the homeowners in the country are sitting on massive amounts of home equity. They will not be walking away from their homes if the housing market begins to soften.