If you look at today’s figures, the strength of this real estate market is particularly striking. We can see that this is one of the most fundamental real estate markets of our lives – if not the strongest real estate market of our lives. Here are two bases that support this point.
1. The current mortgage interest rate for existing mortgages
First, let’s look at the current interest rate on existing mortgages. According to the Federal Housing Finance Agency (FHFA), as of the fourth quarter of last year, over 80% of existing mortgages have an interest rate of less than 5%. That’s significant. And to take it a step further, over 50% of mortgages have an interest rate of less than 4% (see chart below):
There’s a lot of media talk these days about a possible foreclosure crisis or a spike in homeowner defaults, but consider the following. Homeowners with such good mortgage rates will work as hard as they can to keep that mortgage and stay in their homes. That’s because they can’t go out and buy another house or even rent an apartment and pay what they’re earning today. Your current mortgage payment is cheaper. Even downsizing could cost more given today’s higher mortgage rates.
Here’s why this gives the real estate market such a solid foundation today. Because there are so many homeowners with such low mortgage rates, we can avoid a 2008-like foreclosure spate crisis.
2. The amount of home ownership
Second, the Americans currently have enormous net worth. According to the Census and ATTOM, about two-thirds (roughly 68%) of homeowners either have their mortgage paid off or have at least 50% equity (see chart below):
This is what the industry calls “equity rich”. This is significant because thinking back to 2008, some people had to make the difficult decision to leave their homes because they owed more on the house than it was worth.
But this time it’s different because homeowners have accumulated so much equity in just the past few years. And when homeowners have that much equity, we can prevent another wave of distressed properties from coming onto the market like the ones we saw during the crash. It also creates an extremely strong foundation for today’s housing market.
bottom line
We are in one of the most fundamental real estate markets of our lives because homeowners will struggle to maintain their current mortgage rates and they have enormous amounts of equity. This is another reason why everything is fundamentally different from 2008.
