I was at Wal-Mart a few weeks ago and kept passing the same shopper as we meandered through the aisles, her going in one direction and me in the other. She was on her cell and was talking loudly as people do. I only caught bits of conversation as I replenished my pasta supply or tried to remember which condiments were running low. She was relaying the equity situation in her house in a heady manner, the way people talk when there is money involved. She was going over it as if to sort it out herself, how the equity she had gained was something to work with, but then she would also be paying more on the next purchase. It was unchartered territory.
There is a tendency to talk about the real estate market as one great monolith of a thing which spans the entire US. Although it is true that you can look at aggregate numbers for the entire nation, doing so eliminates many insights. Proclamations about rising prices (or falling for that matter) is rather ho hum. Concluding that rising prices is bad as it prohibits or makes it more difficult for newcomers to enter the market is true but fails to acknowledge the winners in the market.
History is quickly forgotten, so I’ll dust off this chart to remind everyone of the homeownership rates for the last twenty years.
Loose credit pushed many buyers into homeownership from the early 2000’s until the crash started in 2007. The common refrain back then was if there was a pulse, there was financing. And the rise in homeownership rates climbed nicely by 5%. A lot of the mortgages were initiated at a below market rate which was fixed for seven years. Once the favorable payment expired many consumers went into default, and hence the steep decline in rates during the crash.
But some first-time buyers, who wouldn’t have qualified if the loose credit hadn’t been offered, did hang onto their properties. And now, twelve years later, they have a nice amount of equity. These are one of the groups of people policies should be focusing on today. Like the modest shopper in Wal-Mart, they have gained a nice equity position yet don’t quite know what to do with it.
Here’s another story of a first-time buyer who was able to use family connections to purchase a home off market. Her relative used their equity to move up, and she secured a lovely home. I find these stories much more interesting than, Stop! Prices are rising. The sky is falling!