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Deep Dive: Home Equity

As we head into the last few months of the year and look back on 2023, we can definitively say that one of the biggest challenges to our market has been lack of inventory. We’re so grateful to have been able to help our buyers find creative solutions and navigate this competitive market, but we find ourselves still searching for more inventory to serve our clients who are still on the hunt for a new home. Recently, there’s been a promising uptick in inventory, and we believe this trend will continue into 2024. That said, we don’t expect a drastic change overnight. We predict that a slow increase in inventory, coupled with current interest rates, should produce some stability in the market.

Here at the Boehm Nolen Group, we believe most agents know what is happening in the market, good agents understand it, and great agents are willing to explain it. In our goal to be the latter, we wanted to share some of the trends and nationwide statistics that have contributed to the current market conditions.

First, we’ve seen a meteoric rise in prices. The national average for home prices increased 57.3% in the past 5 years, and in Alabama, it was even higher at 59.8% (nearly 12% each year). That means that if someone bought a $1,000,000 home in 2018, that house is worth $1,600,000 today.

This brings us to the amount of equity homeowners are now sitting on. That homeowner who paid $1,000,000 in 2018 now has an extra $600,000 in equity, plus the principal they’ve paid down over the past 5 years.

On average, homeowners in the US have around $300,000 of equity, and nearly 38.7% own their home free and clear. The pie chart below breaks down the large number of homeowners with over 50% of equity, and the small number, 2%, of owners with less than 9% equity.

What does all of this mean? As we re-anchor ourselves to the change in interest rates (which won’t subside for some time), buyers will start to look at this equity as an option for buying down mortgages on their next purchase. This will keep their payments in a more comfortable zone despite the current, higher than normal, interest rates.

A major issue for many of our clients is that they need to make a move but are unwilling to give up the low interest rate they secured a few years ago. High interest rates have created an affordability problem, but as more sellers tap into their massive equity to accommodate a move, more inventory will become available.

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