The housing market we are witnessing today exhibits remarkable strength. When analyzing the figures, it becomes evident that this housing market is among the most robust we have ever experienced, if not the strongest. Two key indicators support this claim.
1. The Current Mortgage Rate on Existing Mortgages
Let's begin by examining the current interest rates on existing mortgages. As per data provided by the Federal Housing Finance Agency (FHFA), during the fourth quarter of the previous year, more than 80% of existing mortgages had rates below 5%. This fact holds significant importance. Furthermore, over 50% of mortgages had rates below 4%, as illustrated in the graph below:
Despite the media speculation surrounding a possible foreclosure crisis or an increase in homeowner loan defaults, it is important to consider the following perspective. Homeowners who enjoy favorable mortgage rates will strive to maintain their current mortgages and remain in their homes. The reason behind this is that they would struggle to find another house or even rent an apartment at the same affordable cost. Even downsizing could prove more expensive due to higher mortgage rates in today's market.
This scenario contributes to the exceptionally solid foundation of the current housing market. With a large number of homeowners benefiting from low mortgage rates, the risk of a foreclosure wave similar to the one experienced in 2008 is greatly mitigated.
2. The Amount of Homeowner Equity
Another factor that bolsters the housing market's stability is the substantial amount of homeowner equity. Data from the Census and ATTOM reveals that approximately 68% of homeowners have either fully paid off their mortgages or possess at least 50% equity, as depicted in the chart below:
However, the present situation differs significantly, as homeowners have accumulated substantial equity over the past few years alone. This abundance of equity plays a crucial role in preventing another surge of distressed properties from entering the market, as observed during the crash. It also establishes an exceptionally sturdy foundation for today's housing market.
To Sum It Up:
We find ourselves in one of the most structurally sound housing markets of our generation due to homeowners' determination to preserve their current mortgage rates and their significant equity holdings. This serves as yet another compelling reason why the current situation fundamentally diverges from that of 2008.