Keeping Current Matters shared a blog about homeownership recently that I wanted to touch on. The question they asked in the blog was “how financially strong are homeowners throughout the country?” Given that mortgage debt grew beyond $10 trillion over the past year, it’s a good question. See what they wrote:
Recently Odeta Kushi, Deputy Chief Economist at First American, answered that question when she said: “U.S. households own $41 trillion in owner-occupied real estate, just over $12 trillion in debt, and the remaining ~$29 trillion in equity. The national “LTV” in Q2 2022 was 29.5%, the lowest since 1983. Homeowners had an average of $320,000 in inflation-adjusted equity in their homes in Q2 2022, an all-time high.”
LTV refers to “loan to value” ratio, which compares the size of your mortgage loan to the value of the home. For example, if your home is worth $200,000 and you have a mortgage for $180,000, your LTV ratio is 90%, because the loan makes up 90% of the total price. Another way to think about this is in terms of your down payment. If you put 20% down, that means you’re borrowing 80% of the home’s value, so your LTV ratio is 80%.
This is important because home equity allows homeowners to be in control. It is another reason why we won’t see the housing market crash. Homeowners today have more financial strength than they have had since 1983.
For buyers (those worried about the rates), I actually think this is a great time to buy. Prices have come down and buyers no longer have to compete with multiple offers, so if you can take a leap of faith from all the fear being spewed in the media, you can find yourself owning a home.
We still have a housing shortage and when rates go down, the buyers will be back in the market, prices will go up, and it will be back to multiple offers. Those who own can simply refinance to a lower rate. Those who believe rates will go down in the next five years are getting 7-year adjustable rate mortgages, also known as ARMs.