Lately, it seems we’ve been hearing a lot about homeowners struggling with their equity. With millions of owners underwater on their mortgages, the government even implemented a specialized refinancing program to help these homeowners. Known as the Home Affordable Refinancing Program (HARP), owners who owed more on their mortgages than their homes are currently worth can obtain refinancing assistance at today’s low interest rates. This program, along with steadily rising home prices, has helped home owner equity rise dramatically.
A recent article from the National Association of Realtors reports that existing home sales rose 2.1 percent in October from the previous month and home prices are up more than 11 percent from the same time last year. Due to these steady price gains, total home owner equity has risen by $760 billion so far this year. According to NAR chief economist Lawrence Yun, if prices continue to rise, equity gains could reach $1 trillion by year’s end.
So what’s behind the sudden spikes in home prices? Most analysts attribute it to a rapidly declining inventory of available homes. Although this is a great situation for home prices in the short term, Yun warns that this could actually be harmful in the long run, as it signals weak home construction activity. The ideal situation, according to Yun, would include a pickup in supply growth, to help prices rise at a sustainable pace.
To read the original NAR article, click here: http://speakingofrealestate.blogs.realtor.org/2012/11/20/home-owners-add-760-in-new-home-equity/
A Few Facts About Equity:
- Home equity is the difference between the home’s fair market value and the outstanding balance of all liens on the property. For instance, if your home’s market value is $200,000 and you owe $150,000, you have $50,000 in home equity.
- Sometimes, home owners can owe more on their mortgage than the home is actually worth, resulting in negative equity. This is often referred to as being “underwater” in a mortgage.
- The property’s equity increases as the borrower makes payments toward the mortgage balance, and/or as the property value appreciates.
- In economics, home equity is sometimes called real property value.
There is a home loan type known as a Home Equity Line of Credit (HELOC) in which the borrower can take money out of their existing equity to help pay for other expenses. This type of loan carries a certain number of benefits and drawbacks. Talk to a mortgage representative to learn more about these loans types.