Account: Login or Signup

706-970-7120 info@bestmountaindeals.com

Returning Equity Boosts Real Estate Market

Real estate equity is coming back. If you own a home or invest the odds are that you’re very much richer than you were just a few years ago. While we don’t have a full recovery yet, there’s evidence that the housing market has become more attractive in most metro areas.

According to the Federal Reserve, homeowner equity peaked in 2005 when the value of U.S. homes — market value less debt — equaled a rosy $13.1 trillion. Unfortunately things went downhill from there as a result of the financial crisis, by 2011 homeowner equity had fallen to $6.4 trillion and millions of American homeowners saw half their real estate equity disappear.

This was not just an academic matter. Without equity, borrowers could not refinance as rates fell and they couldn’t sell without bringing cash to closing. The alternatives were short sales, foreclosures and staying in place. In the end, more than 7 million homes were lost to foreclosure.

Now the good news: Between 2011 and 2014 homeowner equity went from $6.4 trillion to $11.3 trillion. That’s an increase of $4.9 trillion. With any luck it’s not unreasonable to believe that equity as measured on a cash basis might return to 2005 levels in the next year or so.

More Equity, More Possibilities

More equity means more homeowner options. Qualified owners can now borrow against their homes, borrow more than a few years ago or do nothing and avoid additional debt.

The situation with reverse mortgages is a little different. More equity suggests that older homeowners, those above age 62, can more readily get reverse financing. However, the FHA’s rules for such loans have tightened
so it takes more equity to get a loan of a given size when compared with a few years ago. This is important because nearly all reverse mortgages are originated with FHA backing.

According to RealtyTrac, May foreclosure starts were below the pre-crisis levels seen in 2005 and 2006. Part of the reason for fewer foreclosure starts is that with additional equity it’s increasingly easy to avoid foreclosure.
As long as market value at least equals mortgage debt plus closing costs owners in financial trouble can just sell for a fair market price without damaging their credit.

For many borrowers home equity lines of credit — so-called HELOCs — have been a ticking time bomb, a bomb which can now be diffused in many cases because more equity is available.

A HELOC is essentially a huge credit card secured with a home, a way for owners to extract equity without selling. In general terms HELOCs have two phases: a “draw” period when cash can be taken out and a “repayment” period when borrowers must repay the debt outstanding at the end of the draw phase.


For instance, the Smiths got a $100,000 HELOC in 2005. The loan has a 10-year draw period and a five-year repayment phase. In this case Smith had a $90,000 balance at the end of the draw period and must now repay
the debt over five years at 6 percent interest. This means the required monthly payment will go from zero during the draw period to $1,739.95 per month for the final five years of the loan term.

For many households such a massive and immediate additional debt is a sure route to poverty if not foreclosure. However, with additional equity many homeowners can simply refinance their current mortgage or
get a second loan to replace the HELOC. If they refinance into a new loan at 4 percent and with a 30-year term, the monthly cost to finance an additional $90,000 falls to $429.67 — an expense which is far easier to absorb.

According to a recent Experian study, HELOCs originated between 2005 and 2008 and representing $265 billion “are outstanding and nearing the repayment phase.” For millions of homeowners increased equity is the
key to avoiding HELOC-based foreclosures.

It’s Not All Rosy

While the great equity increase seen during the past few years is surely welcome, the housing sector remains fragile for several reasons.
First, some markets continue to struggle. The National Association of Realtors reports that in the first quarter home prices were up in 148 metro areas but down in 25.

Second, with growing equity we’re seeing more first-timers getting back into the market. NAR says in May that first-time buyers represented 32 percent of the market, up substantially from the 27 percent seen a year ago.

This is good news but not great news — historically first-timers have been about 40 percent of the market so there’s room for further growth.
“More first-time buyers are expected to enter the market in coming months, but the overall share climbing higher will depend on how fast rates and prices rise,” says Lawrence Yun, NAR’s chief economist.

And therein lies the problem: Rising prices will dampen the influx of first-time buyers — and fewer first-time buyers will make it difficult for prices to rise.

Third, cash is a flighty measure. It may or may not be worth a lot of buying power and buying power is the real measure of wealth. For instance, the Reserve Bank of Zimbabwe has just issued a $100 trillion note, a currency with a lot of zeros that has the same buying power as 40 U.S. pennies.

A decade ago American homeowners had equity worth $13.1 trillion. However, because of inflation, the Bureau of Labor Statistics says it takes $15.951 trillion in today’s dollars to purchase the same goods and services.

If we think about real estate equity after inflation, it means the growing equity seen in recent years is good, very good, but the financial place where we need to be to equal the heady times of 2005 is still further down the
road.


Get the info that you want - right now!

Top Home Renovations for Maximum ROI

Top Home Renovations for Maximum ROI

Read More

OPEN HOUSE TODAY

OPEN HOUSE TODAY 145 Paradise Road

Read More

About Area

Blairsville, Georgia is a small mountain town located in the beautiful Blue Ridge Mountains. Widely known for being one of the most desirable destinations for outdoor adventurers, people come to Blairsville for mountain biking, hiking, fishing or just to marvel at the perfect beauty of nature. A large portion of the area is in the Chattahoochee National Forest, and therefore, will remain untouched and naturally serene and beautiful. In 1942 Lake Nottely was created by the Tennessee Valley Authority for power production. The resulting 4,180 acre lake today is a source of Summer fun, with boating, fishing and swimming abundant, and the river that feeds the lake offers some of the best trout fishing in the state. Vogel State Park, located just outside of town, is centered around Trahlyta Lake and Trahlyta Falls. With rustic cabins on site, and primitive camp sites, you can stay for days or weeks and enjoy swimming, paddle boating and fishing in the lake, hike to the falls, or even play putt-putt. Just beyond Vogel State Park are several more waterfalls with hiking trails and areas to camp, fish, or play in the creek. In addition to all of the majestic waterways running through the valleys, the highest elevation in the state of Georgia is in Blairsville, on top of Brasstown Bald Mountain. Here, you can hike up to the visitor’s center (or take a shuttle) where you have a 360⁰ view, and can see four different states on a clear day, have a picnic, visit the gift shop, and if you’re feeling adventurous, take one of the longer hiking trails, one of which leads to the Appalachian Trail. You won’t be surrounded by department stores or chain restaurants in Blairsville, but you can find handcrafted, original creations in the small shops, or if you visit the Farmer’s Market or one of the many festivals throughout the year. This is certainly a beautiful and unique town worth seeing, perhaps you’ll even want to stay, and if that’s the case, contact your Century 21 Scenic Realty. We are always here for you!

Featured Properties

1075 TRACKROCK CHURCH RD,
Blairsville

  • 4 Bathrooms
  • 4 Bedrooms
  • $ 795000

33 BRACKETT FIELD RD,
Blairsville

  • 4 Bathrooms
  • 4 Bedrooms
  • $ 309000

195 ROLLING HILLS DRIVE,
Blairsville

  • 2 Bathrooms
  • 4 Bedrooms
  • $ 349900

Eagles View Summit

104 EAGLES VIEW SUMMIT, Hayesville, NC, 28904

Watch The Video

Client Reviews

Stone Crest

1658 STONECREST CIRCLE, Hiawassee, GA, 30546

Watch The Video

Subscribe to our Monthly Mountain Market Report

Subscribe to our Monthly Mountain Market Report . All fields with an * are required.