June 11, 2019.
In the past six years, there’s been a major appreciation in housing prices that’s increased home equity significantly. “Cash-out” refinance numbers have started to approach the numbers seen a decade ago in the crash. Some fear we could be repeating our mistakes.
But looking closer at the numbers gives some insight. Homeowners are managing their equity much more responsibly the second time around.
What happened to home equity in 2008
A decade ago, real estate values started to skyrocket. Homeowners were given the green light to begin using their houses as personal ATMs. This looked like a refinance mortgage that converted home equity into cash, also called a cash-out refinance. Home values were appreciating so fast that many homeowners were able to tap in multiple times and cash out equity.
Homeowners had minimal or no equity left as a result, and when housing prices started to fall, this left many owners with negative equity. For these homeowners, the amount owed on their mortgage was greater than the value of their house. Some homeowners who saw that their house had no value left in it quit paying their mortgage.
Eventually, banks foreclosed on the homes with defaulted mortgages, and rising foreclosures decreased housing prices further to force even more homes into negative equity. The cycle snowballed to create the most devastating housing crash we’ve seen in nearly a century.
What’s happening to home equity today
Once again, homeowners in the U.S. are seeing their home equity rise. In late 2018, more than 48 percent of all single-family homes had above 50 percent equity, which many families are tapping into. But compared to 2008, homeowners are better prepared to go in with both eyes open. Freddie Mac’s recent data shows that the total amount of equity being cashed out today is just a fraction of what was being cashed out before the last crash.
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Here’s a comparison of total home equity cashed out through refinance mortgage in billions:
Home equity cash-out values for 2018 ended at a modest $50 billion. Bottom line? We’re not seeing the same recklessness in equity use that led to the last crash. Tapping into home equity when it’s available can be a smart move for many homeowners since the housing market is much more stable than it was leading up to 2008.
What to do when your property value has increased
There’s an easy way to find out how much equity you have available: Get your questions answered from a lender with 31 years of industry experience, one that’s successfully navigated the five previous industry downturns and has plenty of knowledge on the right time to refinance. Tapping into your equity could help you wipe out debt, renovate, pay for college, buy an investment property, or plan a family vacation. Connect with a local loan officer now.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.