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Should We Fear the Surge in Cash-Out Refinances?

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Freddie Mac recently released their Quarterly Refinance Statistics report which covers refinances through 2020. The report explains that the dollar amount of cash-out refinances was greater in 2020 than in recent years. A cash-out refinance, as defined by Investopia, is:

“a mortgage refinancing option in which an old mortgage is replaced for a new one with a larger amount than owed on the previously existing loan, helping borrowers use their home mortgage to get some cash.”

The Freddie Mac report led to articles like the one published by The Real Deal titled, House or ATM? Cash-Out Refinances Spiked in 2020, which reports:

“Americans treated their homes like ATMs last year, withdrawing $152.7 billion amid a cash-out refinancing spree not seen since before the 2008 financial crisis.”

Whenever you combine the terms “spiked,” “homes like ATMs,” and “financial crisis,” it conjures up memories of the housing crash we experienced in 2008.

However, that comparison is invalid for three reasons:

1. Americans are sitting on much more home equity today.

Mortgage data giant Black Knight just issued information on the amount of tappable equity U.S. homeowners with a mortgage have. Tappable equity is the amount of equity available for homeowners to use and still have 20% equity in their home. Here’s a graph showing the findings from their report:Should We Fear the Surge in Cash-Out Refinances? | Simplifying The MarketIn 2006, directly before the crash, tappable home equity in the U.S. topped out at $4.6 trillion. Today, that number is $7.3 trillion.

As Black Knight explains:

“At year’s end, some 46 million homeowners held a total $7.3 trillion in tappable equity, the largest amount ever recorded…That’s an increase of more than $1.1 trillion (+18%) since the end of 2019, the largest percentage gain since 2013 and – you guessed it – the largest dollar value gain in history, to boot. All in all, it works out to roughly $158,000 on average per homeowner with tappable equity, up nearly $19,000 from the end of 2019.”

2. Homeowners cashed-out a much smaller amount this time.

In 2006, Americans cashed-out a total of $321 billion. In 2020, that number was less than half, totaling $153 billion. The $321 billion made up 7% of the total tappable equity in the country in 2006. On the other hand, the $153 billion made up only 2% of the total tappable equity last year.

3. Fewer homeowners tapped their equity in 2020 than in 2006.

Freddie Mac reports that 89% of refinances in 2006 were cash-out refinances. Last year, that number was less than half at 33%. As a percentage of those who refinanced, many more Americans lowered their equity position fifteen years ago as compared to last year.

Bottom Line

It’s true that many Americans liquidated a portion of the equity in their homes last year for various reasons. However, less than half of them tapped their equity compared to 2006, and they cashed-out less than one-third of that available equity. Today’s cash-out refinance situation bears no resemblance to the situation that preceded the housing crash.

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First-Time Buyers

Townhomes: A Smart Solution for Today’s First-Time Buyers

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Buying your first home in today’s market can feel tough. Between high home prices and mortgage rates, affordability is still a big challenge. And some buyers are making one simple trade-off that’s getting them in the door faster: square footage.

According to the National Association of Home Builders (NAHB), 35% of buyers are willing to purchase something smaller to make homeownership happen. And one place you can usually find a smaller footprint (and sometimes better affordability) is in townhomes.

Why Townhomes Are Gaining Popularity

Townhomes typically cost less than single-family homes due to their more limited size. And that’s a big plus for today’s budget-conscious buyer. As Realtor.com says:

“In today’s market, affordability remains a key priority for homebuyers, making townhomes an attractive option because they are often priced more reasonably than single-family homes. It makes them especially appealing to first-time homebuyers on a tighter budget . . .”

So, if you’re trying to buy but feeling stuck because of rising prices, shifting your focus to townhomes could be one way to get into homeownership without maxing out your budget.

Builders Are Responding to the Demand

Builders have seen buyers’ appetite shift to smaller homes, and they’re adjusting to meet the demand. As Joel Berner, Senior Economist at Realtor.com, explains:

“Builders are making a concerted effort to provide smaller, more affordable inventory to the market in a way that the existing-home market cannot. Townhomes are a significant portion of that effort.”

And the numbers back it up. According to data from Realtor.com, townhomes now make up a bigger share of new construction listings than they did just a couple of years ago (see graph below):

a graph of a growing graphThat means, if you’re interested in this type of house, you have more choices than you would have had over the last few years. And more options that are potentially more affordable are definitely a good thing. It should make your search for your first home a bit easier.

Is a Townhome Right for You?

If you’ve been focused only on more traditional homes with their own yards, an agent can help you explore whether a townhome could work for you. Who knows, you may find out you love the lifestyle. A lot of people do. As an article from the National Association of Realtors (NAR) explains:

“Townhomes tend to cost less than single-family detached homes and can be appealing to young professionals who may desire medium-density, walkable neighborhoods.”

That’s because they’re lower maintenance, they can provide a sense of community with other residents, and they have their own unique amenities. Not to mention, they give you the chance to start building wealth through homeownership without the upkeep that comes with having your own detached, single-family home. And that can be great for first-time buyers who are a bit worried about the maintenance anyway.

But they also come with some other considerations, like dealing with noise through shared walls. If you’re a renter right now, maybe you’re used to that already. But these are the types of things you’ll want to think about. And that’s where an agent’s expertise comes in. They’ll help you weigh the pros and cons, so you understand how a townhome fits into your lifestyle and long-term goals before making your decision.

Bottom Line

If you’re struggling to find a home within your budget, it may be time to expand your search and consider options you haven’t before, like townhomes. Sometimes, compromising a little bit on space is worth it to get your foot in the door.

What matters most to you — space, location, or budget? Connect with an agent to figure out where you can flex to make homeownership happen.

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For Buyers

Here’s What a Recession Could Mean for the Housing Market

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Recession talk is all over the news, and the odds of a recession are rising this year. And that leaves people wondering what would happen to the housing market if we do go into a recession.

Let’s take a look at some historical data to show what’s happened in housing for each recession going all the way back to the 1980s.

A Recession Doesn’t Mean Home Prices Will Fall

Many people think that if a recession hits, home prices will fall like they did in 2008. But that was an exception, not the rule. It was the only time we saw such a steep drop in prices. And it hasn’t happened since.

In fact, according to data from CoreLogic, in four of the last six recessions, home prices actually went up (see graph below):

a graph of a graph showing the price of falling pricesSo, if you’re thinking about buying or selling a home, don’t assume a recession will lead to a crash in home prices. The data simply doesn’t support that idea. Instead, home prices usually follow whatever trajectory they’re already on. And right now, nationally, home prices are still rising at a more normal pace.

Mortgage Rates Typically Decline During Recessions

While home prices tend to stay on their current path, mortgage rates usually drop during economic slowdowns. Again, looking at data from the last six recessions, mortgage rates fell each time (see graph below):

a graph of a graph showing the rise of mortgage ratesSo, a recession means mortgage rates could decline based on the data. While that would help with affordability, don’t expect the return of a 3% rate.

Bottom Line

The answer to the recession question is still unknown, but the odds have gone up. But that doesn’t mean you have to wonder about the impact on the housing market – historical data tells us what usually happens.

When you hear talk about a possible recession, what concerns or questions come to mind about buying or selling a home?

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For Buyers

Paused Your Moving Plans? Here’s Why It Might Be Time To Hit Play Again

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Last year, 70% of buyers abandoned their home search – and maybe you were one of them. It makes sense. Inventory was low, prices were high, and mortgage rates were up and down like a rollercoaster. All of that made it really hard to find a home you loved – and could afford.

But guess what? The market is shifting.

So, if you paused your moving plans in 2024, it might be time to hit play again. Here’s why.

More Inventory Opens Up More Options

Even if you could make the numbers work, the lack of available homes in recent years probably made it hard to come by something that fit your needs. But inventory is rising, which means you have more options now.

According to Realtor.com, inventory has jumped 27.5% since this time last year (see graph below):

a graph showing the average of a home saleSo, if you were reluctant to list your house because you weren’t sure where you’d go if it sold, you have more choices than you did a year ago. That’s a big win.

Homes Are Staying on the Market Longer, Too

When the supply of homes for sale is low, they’re snatched up quickly because there just aren’t enough of them to go around. And a few years ago, that meant your house could sell overnight. While that’s not always a bad thing, if you’re planning a move and also need to find your next home, a slower pace isn’t the end of the world. In fact, it’s welcome relief.

Now that inventory has grown, homes are staying on the market longer, meaning you don’t have to feel as rushed in the process (see graph below):

a graph of blue barsThe latest data shows the typical time homes spent on the market went up by about 8% this year – that’s higher than we’ve seen since 2020, but still a faster pace than before the market ramped up. And it’s about a week longer than last year. Talk about a sweet spot for movers. It may seem like just a few days, but it gives you more flexibility and time to be thoughtful about your decisions. As Hannah Jones, Senior Economic Research Analyst at Realtor.com, notes:

“There are more homes for sale than in the last few years, which means the market pace is a bit more manageable–with longer days on market–and many sellers are more flexible . . . Though buyers face still-high housing costs, they may find a bit more give in the market, which could give them more time to make a decision, even in the busy spring and summer months.”

And if you’re thinking – but wait – doesn’t that mean it will be harder to sell my house? Don’t worry. With inventory still almost 23% below the pre-pandemic norm, well-priced homes are selling, especially as more buyers step back into the game this season.

Bottom Line

With growing inventory, sellers who want to upgrade, downsize, or relocate have more choices. Plus, with less pressure to rush into an offer, it could be a great time to revisit your home search if you put it on hold.

With more homes on the market and more time to make decisions, what else do you need to see in order to kickstart your home search again?

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Copyright © 2020-2025 Landshark Mark, LLC. All rights reserved.  
The information contained, and the opinions expressed, in these article are not intended to be construed as investment advice. Let's Talk Real Estate, Mark Sincavage, Landshark Mark, LLC and Keeping Current Matters, Inc. do not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Let's Talk Real Estate, Mark Sincavage and Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.