Americans Sitting on Tremendous Equity
To crash or not to crash.
It's always an interesting conversation when I'm asked how the housing market is doing. Everyone has their own opinion, and as time has gone on they've all become so different.
I always like to look at where the opportunities are in any market. Here is an incredible chart that shows just how much equity Americans have in their homes right now.
It shows that 68.7% of homeowners have at least 50% equity in their homes. An absolutely insane stat! Even crazier, nearly 40% of Americans own their home free and clear, meaning no loans.
Talk about opportunity.
Before I talk about the biggest opportunity in the market, I want to address the market crash conversation... (Scroll down if you want to get right to it.)
Nobody can seem to agree on what is going to happen in the housing market. Yet, one thing is for sure. In every market crash, inventory explodes to high levels, which causes a price drop.
Forty percent of homeowners don't have a mortgage. Another 50% have over 30% equity in their home. It's hard to think of very many scenarios that lead to those people NEEDING to sell their homes.
Wanting to sell their home is another story, which I'll get to when I talk about the opportunity in the market.
One thing most people can agree on is that this huge percentage of people won't be selling in distress. If prices were to drop like in 2008, the 70% of Americans with 50%+ in equity would still be cashing out if they sold.
The reality of our market right now is that we still have low inventory alongside low demand. Meaning that a lot of people simply aren't moving right now. Which is understandable, considering where prices and interest rates have gone in the last two years.
So, let's get to the opportunity I mentioned earlier. Let's focus on the 40% that have their homes paid free and clear. You can also add in another larger percentage that have their homes paid off early.
This segment of the market has a huge opportunity right now. Interest rates don't affect them at all. Their buying power is not dictated by what the FED does with interest rates like everyone else.
Let's use the example of someone who purchased a 4-bedroom, 2.5-bathroom home that now has it paid off. Let's say this home is worth about $1.5m.
If they were to sell and downsize, they could buy a $1m house and still put some money in the bank. OR they could bring some more money to the table and upgrade. OR they could buy up and take a small loan to upgrade.
The point is that there are a ton of opportunities. This is the benefit of buying real estate and waiting for a long period of time.
Our clients in this situation are selling high and buying with much negotiating power. However, there are still a few problems that they're running into.
1. Lack of Inventory
Everyone is tired of hearing it, and I'm tired of typing it, but it's true. We help our clients get around this with several methods of finding off-market listings.
2. Selling and Buying
Buying and selling at the same time is difficult. Many people don't want to sell before they know where they're going. There are a few solutions...
You can sell your current home now and rent until you find your next home.
Another option is to wait until you find the right home and then write an offer contingent upon selling your home first. There is nothing wrong with this strategy. But it usually leads to rushing your home to market on top of writing a less competitive offer.
We have a third option that is perfect for people in this situation. It is our Buy Before You Sell program. This allows you to take advantage of the best of both worlds. Buy your next home and move into it, and then sell your current home.
This allows our clients to do the prep to their house that they otherwise likely wouldn't have done. Leading them to sell their home for more money.
It also allows you to write a non-contingent offer, meaning you're likely getting a better deal on the home you buy.
Click here if you want to learn more about the Buy Before You Sell program. I give a full breakdown of how the program works.
Home buyers and home sellers are playing a game of chicken, and sellers are winning. There are a huge amount of buyers sitting on the sidelines waiting for prices to drop.
** Note - Many buyers on the sideline also need to sell before they buy. **
Sellers are holding firm at their prices, which is why we've seen prices continue to increase.
Buyers in the market right now saw what happened when interest rates dropped. They want to get into the market before that happens again.
PS - You can book a call to go over your unique situation.
PPS - Whether you're buying now or waiting, I recommend you stay up to date on the market. Save your home search at SoCalHomesForSale.com so that you get updates in your market.