Real estate equity is making a comeback, according to a blog post by RealtyTrac. While the market has not made a full recovery yet, there’s evidence that the housing market has become more attractive in most metro areas.
According to the Federal Reserve, homeowner equity peaked in 2005 when the value of U.S. homes — market value less debt — equaled a rosy $13.1 trillion. Unfortunately things went downhill from there as a result of the financial crisis, by 2011 homeowner equity had fallen to $6.4 trillion and millions of American homeowners saw half their real estate equity disappear.
This was not just an academic matter. Without equity, borrowers could not refinance as rates fell and they couldn’t sell without bringing cash to closing. The alternatives were short sales, foreclosures, and staying in place. In the end, more than 7 million homes were lost to foreclosure.
Now the good news: Between 2011 and 2014 homeowner equity went from $6.4 trillion to $11.3 trillion. That’s an increase of $4.9 trillion. With any luck it’s not unreasonable to believe that equity as measured on a cash basis might return to 2005 levels in the next year or so.
More equity means more homeowner options. Qualified owners can now borrow against their homes, borrow more than a few years ago or do nothing and avoid additional debt.