The housing market has come a long way since bottoming out just a few short years ago. Confidence has returned on a national level and homes have appreciated at a rate conducive to a sustainable rebound. However, of particular importance, is the amount of equity that has been reintroduced to the market. Despite a drastic slowdown in price appreciation, homeowners have been given a collective $1.7 trillion in additional home equity.
While the increase in equity will surely aid in the current recovery, homeowners are likely to put it to use in different ways. Not unsurprisingly, some of the people that gained equity have already taken out a home equity line of credit. Home equity lines of credit were the fastest growing aspect associated with the mortgage market. Volume during the first half of 2014 is up by an extraordinary 21% compared with the same period last year, according to data collected by credit bureau Equifax. Rolling your debt to a home equity line allows you to pay it off at a much lower interest rate. It is not uncommon for that rate to be bellow 4 percent. Perhaps even more importantly, the interest can be used as a write off.
During the first half of 2014, increased equity allowed homeowners to gain access to $66 billion in credit. That number marks the most borrowed in six years. During the same period, that money was extended to 670,000 borrowers, also a six-year high.
Those who did not look into the HELOC route probably decided to sell once the numbers looked right. In fact, the increase in equity may be attributed to the 12 percent increase in inventory from a year ago. Breathing room, or at least not being under water, made it possible for people to sell their homes with no regret.
Seven million borrowers have been fortunate enough to escape negative equity, thanks to the recent appreciation. Whether it was foreclosure, short sale, paying down debt or home price appreciation, a lot of homeowners were awarded the opportunity to remove themselves from an underwater mortgage. However, as encouraging as that may be, nearly 9 million homeowners are still overwhelmed by debt.
“Looking at negative equity helps us understand so many of the currently out-of-whack dynamics in the housing market, including inventory, rapid home value appreciation and weak sales volumes. None of these problems will be solved overnight, in large part because negative equity will likely be a part of the housing market for years, and easily into the next decade in some hard-hit areas,” Zillow Chief Economist Stan Humphries said in a release.
With the recovery in what seems to be full effect, it is becoming increasingly local. Homes in less expensive neighborhoods are statistically more likely to be underwater than those in more luxurious regions. However, some markets that appeared to be impervious to fluctuations, like Austin or Houston for example, are overvalued for the first time since the downturn. Texas in general, which for a long time appeared impervious to price fluctuations, is seeing huge gains in several metropolitan areas. Austin, Houston and San Antonio all ranked near the top of the nation’s most overvalued markets. In fact, the state’s current appreciation rate is far from traditional gains, and experts have struggled to understand why.
The recent appreciation rates Texas cities have experienced may be due, in large part, to its booming job sector. Cities in Texas have become the beneficiaries of transplanting businesses. Texas has seen considerable job growth, as several companies have relocated there. As a result home builders have seen an increase in activity and permits. Moreover, the drop in oil prices seems to have had no ill-affects.
With all that has happened in the last year or two, home prices are, for the most part, sustainable. Experts don’t expect a lot of movement as we head into the New Year. There are some markets, however, that are considered too expensive. California, in particular, is home to several of the most expansive markets.
“Home prices in Los Angeles have grown by 35 percent since 2012, so valuations look expensive again relative to fundamentals,” housing analysts at Goldman Sachs said in a new report. “A similar pattern occurred in Miami: valuations looked 70 percent too expensive in 2007, 5 percent too expensive in 2012, and now 25 percent too expensive again as of 2014.”