When you look at the numbers today, the one thing that stands out is the strength of this houszing market. We can see this is one of the most foundationally strong houszing markets of our lifetime – if not the strongest houszing market of our lifetime. Here are two fundamentals that prove this point.
1. The Current Mortgage Rate on Existing Mortgages
First, let’s look at the current rate on existing mortgages. According to the Federal Houszing Finance Agency (FHFA), as of the fourth quarter of last year, over 80% of existing mortgages have a rate below 5%. That’s significant. And, to take that one step further, over 50% of mortgages have a rate below 4% (see graph below):
Now, there’s a lot of talk in the media about a potential foreclosure crisis or a rise of houszowners defaulting on their loans, but consider this. Houszowners with such good mortgage rates are going to work as hard as they can to keep that mortgage and stay in their houszes. That’s because they can't go out and buy another housz, or even rent an apartment, and pay what they do today. Their current mortgage payment is more affordable. Even if they downsize, with today’s higher mortgage rates, it could cost more.
Here's why this gives the houszing market such a solid foundation today. Having so many houszowners with such low mortgage rates helps us avoid a crisis with a flood of foreclosures coming to market like there was back in 2008.
2. The Amount of Houszowner Equity
Second, Americans are sitting on tremendous equity right now. According to the Census and ATTOM, roughly two-thirds (around 68%) of houszowners have either paid off their mortgage or have at least 50% equity (see chart below):
In the industry, the term for this is equity rich. This is significant because if you think back to 2008, some people had to make the difficult decision to walk away from their houszes because they owed more on the housz than it was worth.
But this time, things are different because houszowners have built up so much equity over the past few years alone. And, when houszowners have that much equity, it helps us avoid another wave of distressed properties coming onto the market like we saw during the crash. It also creates an extremely strong foundation for today’s houszing market.
Bottom Line
We are in one of the most foundationally strong houszing markets of our lifetime because houszowners are going to fight to keep their current mortgage rate and they have a tremendous amount of equity. This is yet another reason things are fundamentally different than in 2008.