Hi, I am Tom Scott, Realtor with Jean Scott Homes at Keller Williams. This is the last in our series about how COVID-19 is affecting our real estate market and how overall conditions today are quite different than they were just ahead of the Great Recession.
Today I will talk about home equity.
In 2018, total home equity in the US recovered to 2006 levels. However, homeowners are not tapping into that equity today as they did in the run up to the Great Recession. In 2006, a homeowner could borrow 100% and sometimes even 125% of their home’s total value. Today most lenders won’t loan more than 80% of a home’s value on a home equity loan.
According to Freddie Mac as shown in this chart from Keeping Current Matters, from 2005 to 2007, $824 billion dollars in home equity was cashed out. In the last three years, it was only 232 billion dollars. As a result, home equity is significantly higher today than it was is 2007 and homeowners are much less likely to just walk away, a major factor in the collapse of home prices during the Great Recession that we don’t expect to happen again.
The financial crisis that started in 2007 was due to lax, risky, and even fraudulent lending practices that artificially increased home demand and prices, then widespread default and foreclosures precipitated the crash. The resulting oversupply of homes led to high unemployment in the construction industry. Today we have a healthcare crisis with states and the federal government providing resources to solve that and help families avoid default and foreclosure.
For more information about the real estate market and how that relates to your situation, please give us a call. We’d be glad to help get all your questions answered!
Stay safe and healthy! And thanks for watching.
To follow along with our series, here’s Part 4: Loan Requirements with Rachel Pope.