Equity is a sure sign of financial growth
A few years ago, many homeowners experienced a steady decline in equity they had accumulated in their homes. In fact, many had lost all their equity and were "under water." However, even as home values continue to rise, more than a half million homeowners still owe more than twice what their homes are worth.
Fortunately, most homeowners are now in a positive mode with their finances. By the end of last year, a million borrowers had regained their lost equity.
"The nation increased its number of financially secure households by a significant amount in 2015. By the end of the fourth quarter, about 46.3 million - or 91.5 percent - of all properties with a mortgage had equity," according to CoreLogic's most recent analysis, as reported by the National Association of Realtors.
The report listed several metro areas that had the highest percentage of properties with positive equity: San Francisco-Redwood City-South San Francisco, California: 99.3 percent; Houston-The Woodlands-Sugar Land, Texas: 98.1 percent; Denver-Aurora-Lakewood, Colorado: 98 percent; Los Angeles-Long Beach-Glendale, California: 95.5 percent.
"The number of homeowners with more than 20 percent equity is rising rapidly," says Anand Nallathambi, president and CEO of CoreLogic. "Higher prices driven largely by tight supply are certainly a big reason for the rise, but continued population growth, household formation and ultralow interest rates are also factors.
"Looking ahead in 2016, we expect home equity levels to continue to build, which is a good thing for the long-term health of the U.S. economy."
The majority of residential properties with positive equity tend to be at the higher end of the housing market, according to CoreLogic. "Ninety-five percent of homes valued at $200,000 or higher have equity, compared to 87 percent of homes below the $200,000 mark."
As always, the housing market will have twists and turns, but in the long term, purchasing a home is the best investment for most families.
Q. Do young, first-time homebuyers usually purchase a residence in a central business area of a city?
A. A report on this subject was recently issued by the National Association of Realtors:
"A growing share of homebuyers are millennials, and more of them are purchasing single-family homes outside of urban areas. The survey found that although student loan debt is more prevalent among millennial buyers, they aren't the generation with the largest student debt balances.
"The share of millennials buying in an urban or central city area decreased to 17 percent (21 percent a year ago) in this year's survey, and fewer of them (10 percent) purchased a multifamily home compared to a year ago (15 percent). Overall, the majority of buyers in all generations continue to purchase a single-family home in a suburban area, and the younger the buyer, the older the home they purchased."
Lawrence Yun, NAR chief economist, says while millennials may choose to live in an urban area as renters, the survey reveals that most aren't staying once they're ready to buy.
"The median age of a millennial homebuyer is 30 years old, which typically is the time in life where one settles down to marry and raise a family," he said. "Even if an urban setting is where they'd like to buy their first home, the need for more space at an affordable price is for the most part pushing their search further out."
Q. Are mortgage applications to finance new homes increasing or decreasing?
A. Those applications are increasing, according to a report from the Mortgage Bankers Association.
The Mortgage Bankers Association Builder Application Survey data for February shows mortgage applications for new home purchases increased by 24 percent relative to the previous month. This change does not include any adjustment for typical seasonal patterns, the MBA reported.
"Mortgage applications to homebuilder affiliates increased across the board in our survey for February as continued low interest rates and fairly mild weather helped to kick off the spring buying season. Our estimate of new single family home sales for February comes in at 544,000 on a seasonally adjusted basis, nearly 12 percent above February a year ago," said Lynn Fisher, MBA's vice president of research and economics.
• Email Jim Woodard at storyjim@aol.com.
© 2016, Creators Syndicate