Despite the soaring prices in the housing market, existing homeowners have found solace in their ability to tap into their home's increasing equity.
According to a recent report from Black Knight, homeowners' equity reached a staggering $10.5 trillion in June, making it the fourth-highest month on record (up from $10.3 trillion in May). This surge in equity was primarily driven by the prosperous year of 2022, which witnessed a remarkable spike in house prices.
The Black Knight Home Price Index also hit an all-time high, with data reflecting the market's performance since 2000.
Referred to as "tappable" equity, this available borrowing resource for homeowners while maintaining a 20% equity stake reached $10.5 trillion in June. Remarkably, it is merely $434 billion or 4% below the record peak of "tappable equity" achieved in 2022.
Individuals holding an average mortgage experienced a notable increase in their equity, with June figures showing $199,000 compared to $185,000 in the first quarter, as reported by Black Knight.
During the pandemic, approximately 14 million homeowners took advantage of ultra-low mortgage rates by refinancing their homes, leading to significant savings. The New York Fed estimates that refinancing efforts over the past three years enabled homeowners to save a cumulative total of $42 billion.
In stark contrast to the Great Recession, where more than 16 million homeowners found themselves "underwater" (owing more on their mortgages than their properties were worth), only 344,000 homeowners are currently facing this situation today.
While rising home prices have presented challenges for prospective buyers, resulting in limited affordable options, existing homeowners have benefited from accruing equity.
According to Black Knight, purchasing a typical home worth $443,000 cost homeowners $2,308 in July (up from $2,292 in June), including the principal and monthly interest. This means that a household with median wages would need to allocate 36% of their income towards their home.
Housing markets in cities such as Los Angeles, San Diego, and San Jose have become increasingly unaffordable, with typical households having to spend a substantial portion of their income on mortgage payments (68.9%, 60.4%, and 58.4% respectively).
Conversely, the Midwest presents more affordable options for potential buyers. For instance, a typical buyer in Cleveland would only need to allocate 22.9% of their income towards their mortgage. Similarly, Pittsburgh and Oklahoma City offer favorable affordability rates of 25% and 25.2% respectively.
