Headlines About Equity
Home Equity: The Bigger Picture
Home equity has been a hot topic in real estate news lately. And if you’ve been following along, you may have heard there’s a growing number of homeowners with negative equity. But don’t let those headlines scare you. In truth, the headlines don’t give you all the information you really need to understand what’s happening and at what scale. Let’s break down one of the big equity stories you may be seeing in the news and what’s actually taking place. That way, you’ll have the context you need to understand the big picture.
Headlines Focus on Short-Term Equity Numbers and Fail To Convey the Long-Term View
One piece of news circulating focuses on the percentage of homes purchased in 2022 that are currently underwater (meaning that their current value is less than the amount owed on their mortgage). The latest data from Zillow shows that 17% of homes purchased in 2022 are underwater—a record high since they began tracking this data in 2008 during the Great Recession. While this seems like an alarming statistic on its own, it fails to take into account several mitigating factors that could explain why this percentage is higher now than it has been historically.
Factors Affecting Home Equity
It's important to remember that home equity isn't just about how much money someone paid for a home versus its current market value—it's also about how long someone has owned a home. Homeowners with shorter-term mortgages should be expected to see larger swings in their home equity than those who hold longer mortgages, since shorter-term mortgages are more sensitive to changes in market value (since they'll get paid off sooner). Therefore, a homeowner who bought their home at the peak of the housing bubble in 2007 is likely to have seen their home depreciate significantly more than one who purchased their property 10 years ago when prices were lower—even if both homeowners have identical mortgage terms.
Additionally, there are certain markets where appreciation rates far outpace national averages due to local economic conditions like job growth or population growth—which can help buoy home values through rough patches like we're seeing now. Markets such as Austin, Texas; Boise, Idaho; and Nashville, Tennessee have experienced steady appreciation over the past decade despite ups and downs in other areas of the country. This means that even though some markets may experience short-term drops due to macroeconomic events like pandemics or recessions, these impacts could be mitigated by localized economic factors such as job growth or population growth—which can help buoy home values through rough patches like we're seeing now.
Home Equity Is Relative To Your Situation
At its core, home equity is relative to your situation and will vary depending on any number of factors including your market location and how long you've owned your property for. Therefore, it's important not to get too caught up in headlines focused on short-term trends without considering these variables which can influence overall numbers over time. With that said, it's still crucial for potential buyers and sellers alike to keep a close eye on developments related to their local housing markets so they can make informed decisions when buying or selling a house! By doing so, everyone involved can make sure they're making rational decisions based on facts rather than worrying about potential risks associated with buying or selling a property without having all of the necessary information available!
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