Discussing the number of underwater homes and the number of homes with significant equity, the return on investing in real estate compared to other investments, housing predictions for 2018 plus more!
Over 80% of All Mortgage Holders Now Have Available Home Equity to Use
From Black Knight:
As of Q3 2017, approximately 42 million homeowners with a mortgage have nearly $5.4 trillion in equity available to borrow against, assuming a maximum 80 percent total loan-to-value ratio. Over 80 percent of all mortgage holders now have available equity to tap via a first-lien cash-out refinance or home equity line of credit (HELOC).
The big question is whether or not mortgage holders should use this equity and if so, how should they use it. As Black Knight points out, the interest on HELOCs is no longer deductible because of the recently passed tax reform.
Anyone thinking about getting a HELOC or cash out refi should talk to their tax professional before making any decisions!
The increase in usable home equity is mainly due to the way that home prices have been increasing. The number of homeowners with a mortgage that owe more than their home is worth is at the lowest level since 2006.
It is possible that many home owners could sell or refinance or use the equity in their homes to pay off other debts. Plenty of interesting options and consulting with your local Realtor, your financial advisors and mortgage lender is strongly advised!
It isn’t just Black Knight reporting that more homes have positive equity! CoreLogic’s recently reported that the percentage of underwater homes ( homes with negative equity ) has decreased from 26% back in Q4 2009 to only 4.9% today.
This map illustrates the share of homes with a home loan and positive equity. (The states in gray have insufficient data to report.)
Frank Nothaft, Chief Economist at CoreLogic, said:
Homeowner equity increased by almost $871 billion over the last 12 months, the largest increase in more than three years. This increase is primarily a reflection of rising home prices, which drives up home values, leading to an increase in home equity positions and supporting consumer spending.
Strong consumer spending does help our economy a lot. But it is the increase in equity that we should be excited about.
Of the 95.1% with positive equity, 82.9% have significant equity (which means they have more than 20% equity). This means that homeowners that were underwater a few years ago can sell their home now.
I can remember just a few short years ago that many people were underwater. When a home owner is underwater, they owe more for the home than the current market value.
Check out this map showing how many homes in each state have significant equity today:
Maybe you want to sell your home but are thinking it was impossible. The good news is that you could be like the almost 82% that have significant equity in South Carolina.
Surprise! Returns on Housing on Par With Equities
A key contribution is that for the first time we compile historical returns on the largest but oft ignored component of household wealth – housing. We also follow earlier work in documenting annual equity, bond, and bill returns, but here again we have taken the project further. We re-compute all these measures from original sources, improve the links across some important historical market discontinuities (e.g. closures and other gaps associated with wars and political instability), and in a number of cases we access new and previously unused raw data sources. With these data, here are some of the puzzling results we uncovered.
Perhaps the most surprising finding is that total returns on residential real estate are on a par with the returns to equities – on average, about 7% per annum – but they are far less volatile. In some countries and some periods, equities have performed slightly better than housing, but only at the cost of much higher volatility and higher synchronicity with the business cycle.
This is puzzling. Housing portfolios are more difficult to diversify than equity portfolios and transaction costs are admittedly higher. But even accounting for local level variability in house prices, a great deal of this housing puzzle is difficult to fully explain.
I don’t think this is puzzling IF ( mighty big 2 letter word ) you look at real estate as a long term investment. And buy smart by using logic and accurate data while ignoring your ego and emotions…
38% Say U.S. Heading in Right Direction
Thirty-eight percent (38%) of Likely U.S. Voters now think the country is heading in the right direction, according to a new Rasmussen Reports national telephone and online survey for the week ending January 4.
The level of pessimism is much better than it has been for quite some time but 56% still think the country is on the wrong track. I think too many people are letting the constant blah blah blah of political BS get to them.
Things are much better than they were a few short years ago. Who gets the glory or the blame does not matter as much as the fact we are doing much better…
4 Housing Predictions for 2018
From AEI’s Housing Market Index Release for Third Quarter 2017 (emphasis is mine):
The historically tight supply of single-family homes will tighten further in 2018 after hitting a record low in November 2017: on December 21, 2017 the National Association of Realtors (NAR) announced that November 2017 remaining inventory of existing homes for sale hit a record low of 3.4 months — eclipsing the prior record of 3.5 months reached in both January 2005 and January 2017. Expect new lows to be recorded for December 2017 and January 2018. January is projected to come in at around 3 months. This tight supply trend has been going on for 5+ years.
The national home price boom that began in mid-2012, will continue, and given the unprecedented low levels of inventory, will even accelerate further: expect year over year increases of 6.25% -6.75%, up from about 6%-6.5% in 2017. The substantial reduction in the utilization of the mortgage interest deduction and commensurate reduction in subsidies, will somewhat reduce upward pressure on home prices. Without the tax act, the prediction for 2018 home price increase would have been even higher: 6.75%-7.25%.
First-time buyers (FTB) will face even higher home price gains for entry level homes. Expect year-over-year gains for the bottom third of homes to come in at 10.5% to 11% for 2018 (December 2018 over December 2017 based on 16 tiered HPI from CoreLogic Case Shiller). At current levels of wage growth, this boom in entry level home prices is ultimately unsustainable.
Not a pretty set of predictions…
Serious home buyers need to get the lead out as both home prices and mortgage rates are predicted to increase. I know we have been hearing this about mortgage rates for several years but dragging your feet could be expensive!
And it is bad news that we are going to continue to see low inventory issues in the coming year. It isn’t just this report saying we will continue to see low inventory issues in 2018.
NAR recently said:
Total housing inventory at the end of November dropped 7.2 percent to 1.67 million existing homes available for sale, and is now 9.7 percent lower than a year ago (1.85 million) and has fallen year-over-year for 30 consecutive months. Unsold inventory is at a 3.4-month supply at the current sales pace, which is down from 4.0 months a year ago.
While NAR is talking about ALL of the country, you will see tight inventory in many price ranges in the Anderson SC area. Home buyers need to be properly prepared and cannot hesitate to make an offer if they like a home.
There could be more homes hitting the market soon according to Joseph Kirchner, Senior Economist for Realtor.com:
The increases in single-family permits and starts show that builders are planning and starting new construction projects, that’s a good thing because it will help to relieve the shortage of homes on the market.
This will be a good thing for buyers but for those planning on selling, more competition is never a good thing. If you’re considering selling your home, right now could be the best time.
There is strong demand and less competition in many price ranges/areas of Anderson County. Waiting could be a mistake…
Home Buyer Sentiment Decreases
From Fannie Mae:
- The net share of Americans who say it is a good time to buy a home fell 5 percentage points to 24%
- The net percentage of those who say it is a good time to sell remained unchanged at 34%
- The net share of Americans who say home prices will go up fell 2 percentage points to 44% in December
- The net share of those who say mortgage rates will go down over the next 12 months fell to 52%
- The net share of Americans who say they are not concerned about losing their job fell to 68%
- The net share of Americans who say their household income is significantly higher than it was 12 months ago
Some good some bad. Remember it isn’t what other people think but what is best for you…
Well that is all I have time for today! Be sure to hit those share buttons if you enjoyed this post!