Housing Prices Soar
Are you looking to take advantage of record-low mortgage rates to buy a house? If so, you’re not alone — homes are in high demand. Bidding wars erupted in marketplaces across the country due to the coronavirus pandemic, which exacerbated an already scarce supply. Record-low mortgage rates merely contributed to the purchasing frenzy which sent housing prices through the roof, no pun intended. As prices continue to rise, homeowners are becoming increasingly wealthy.
According to CoreLogic, a leading provider of financial data, homeowners saw their equity rise by 20% in the first quarter compared to a year ago. This equates to a total gain of about $2 trillion — the average gain per borrower was $33,400. Of course, the huge gain is due to rising housing prices, which increased by nearly 11% in March, according to CoreLogic.
Because purchasers have already struck an affordability ceiling, home values are projected to drop in the second half of 2021. Sales have slowed, which usually means price reductions. However, home prices are unlikely to crash since there is still substantial demand for homes. Buyers are expected to return once prices start to stabilize.
If you’re wondering if this could play out like the 2007-2008 subprime mortgage crisis, I wouldn’t be too worried because today’s mortgage lending is significantly stricter. Additionally, only the most creditworthy borrowers are currently being lent to by banks — no more NINJA (no income, no job, and no assets) loans.
It’ll be interesting to see where housing demand is by the end of the year.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.