The Current Housing Market Is Exceptionally Strong
The current state of the housing market showcases unprecedented strength. In fact, it may very well be the strongest housing market we have witnessed in our lifetime. Let's delve into two key factors that support this assertion.
1. Favorable Mortgage Rates on Existing Mortgages
A crucial indicator of market strength is the prevailing rate on existing mortgages. According to the Federal Housing Finance Agency (FHFA), more than 80% of existing mortgages recorded a rate below 5% as of the fourth quarter of the previous year. This statistic is highly significant. Furthermore, over 50% of mortgages have a rate below 4%, as illustrated in the graph below:
Amid media speculation regarding a potential foreclosure crisis or an upsurge in loan defaults, consider this: homeowners with such favorable mortgage rates will strive diligently to retain their homes. They understand that purchasing another house or even renting an apartment at today's rates would likely result in higher monthly expenses. Thus, their current mortgage payment remains affordable. Even downsizing could prove more costly due to the current higher mortgage rates.
This aspect contributes to the solid foundation of today's housing market. The large number of homeowners benefiting from low mortgage rates mitigates the risk of a flood of foreclosures similar to the 2008 crisis.
2. Substantial Homeowner Equity
Secondly, Americans currently possess substantial homeowner equity. According to data from the Census and ATTOM, approximately 68% of homeowners have either paid off their mortgages entirely or hold at least 50% equity, as depicted in the chart below:
This phenomenon is referred to as being "equity rich" within the industry. It holds tremendous significance, as it contrasts with the circumstances of 2008 when some individuals were forced to abandon their homes due to negative equity.
The present situation differs greatly, as homeowners have accumulated substantial equity in just a few years. When homeowners possess significant equity, it prevents a surge of distressed properties from flooding the market, as was witnessed during the housing crash. This robust foundation further strengthens today's housing market.
In conclusion, the current housing market stands as one of the most foundationally strong markets of our lifetime. Homeowners are determined to retain their mortgages with advantageous rates, and they possess substantial equity. These factors highlight the fundamental differences between the current market and the conditions prevailing in 2008.