Home values in the US hit record highs to the tune of $26.1T, according to a recently released report known as the Flow of Funds by the Federal Reserve.

Home values gained +4.3% from one year ago. Though hitting the highest level of home values since 2002, this gain was the slowest annualized increase in home values since 2012.

The collective value of US homes is now +15% higher than home values reached during the bubble peak in 2006. (Just a reminder to those who’ve forgotten or weren’t around in 2006, once the bubble popped, it took a decade before home values recovered.)

As home values have risen, homeowner equity has risen. Some homes are now worth more than the mortgages on them. According to the Fed, Americans now own 60.4% of their homes, the highest level of home equity since 2002.

As we know, mortgage rates have tumbled in the last six months by a full percentage point as the economy has showed signs of slowing. Investors are worried about these fallen rates, now an average of 3.82% for 30-year fixed rate according to Freddie Mac, as well as any fall-outs that might occur due to the trade war situation with China.

Lower mortgage rates, on the other hand, translate into continued gains in home prices as well as cheaper financing options for potential buyers. Those potential buyers now qualify for higher-balance mortgages and have the latitude to bid more for properties. With such latitude, Freddie Mac is forecasting, “Existing home sales have the benefit from low mortgage rates and a healthy job market.”

On the whole, according to a piece in HousingWire written by Kathleen Howley, an increase in home equity “…usually supports the US economy because Americans either refinance their first-lien mortgages at higher balances (cash-out refinances) or the get home equity loans in a junior-lien position.”

 

Americans converted $19B of home equity into cash in Q11 2019 via refinancing and used that money, typically, for home renovations, college tuition and/or to pay off credit card debt.