This Real Estate Market Is the Strongest of Our Lifetime

As we examine the statistics today, the outstanding factor is the robustness of the housing market. It's evident that this might be the most solid housing market we've had in our lifetime, if not the strongest. To support this claim, here are two fundamental indicators.

1. The Current Mortgage Rate on Existing Mortgages

Let's start by examining the prevailing rates on current mortgages. Based on data from the Federal Housing Finance Agency (FHFA), as of the fourth quarter of the previous year, more than 80% of existing mortgages have a rate lower than 5%. This is a notable figure. Additionally, more than 50% of mortgages have a rate below 4%.(see graph below):

The media has been discussing a possible foreclosure crisis and an increase in homeowners defaulting on their loans. However, it's important to note that homeowners who have secured favorable mortgage rates will do everything in their power to maintain their payments and keep their homes. This is because buying or renting a new place would be more expensive than their current mortgage payment. Even downsizing could be costlier due to higher mortgage rates.

Today, the housing market has a solid foundation due to the large number of homeowners with low mortgage rates. This reduces the risk of a crisis caused by a flood of foreclosures, as was experienced in 2008.

2. The Amount of Homeowner Equity

It is worth noting that a significant number of Americans currently possess substantial equity. Reports from the Census and ATTOM reveal that approximately 68% of homeowners have either paid off their mortgage or have achieved at least 50% equity in their homes. (see chart below):

In the real estate industry, the phrase "equity rich" is used to describe a situation where a homeowner has significant equity in their property. This is particularly important when we consider the housing crisis of 2008, where many homeowners were forced to abandon their homes because the amount owed on the mortgage exceeded the property's value.

There is a notable difference this time around as homeowners have accumulated a significant amount of equity in just the past few years. This substantial equity helps prevent another surge of distressed properties from entering the market as we experienced during the economic downturn. Moreover, it establishes a solid foundation for the present housing market.

Bottom Line

The current housing market is exceptionally robust due to the determination of homeowners to maintain their existing mortgage rates and the significant amount of equity they possess. These factors differentiate the current situation from the housing crisis of 2008.