Are Owners Using Their Homes as ATMs Again?

Dated: 12/06/2018

Views: 5

2008 vs. Now: Are Owners Using Their Homes as ATMs Again? | MyKCM

Over the last six years, we have experienced strong price appreciation which has increased home equity levels dramatically. As the number of “cash-out” refinances begins to approach numbers last seen during the crash, some are afraid that we may be repeating last decade’s mistake.

However, a closer look at the numbers shows that homeowners are being much more responsible with their home equity this time around.

What happened then…

When real estate values began to surge last decade, people started using their homes as personal ATMs. Homeowners would refinance their houses and convert their equity into instant cash (known as “cash-out” refinances). Because homes were appreciating so rapidly, many homeowners tapped into their equity multiple times.

This left homeowners with little-or-no equity left in their homes, so when prices started to fall many homeowners found their houses in a negative equity situation (where the mortgage amount was greater than the value of the home). When some of these homeowners saw that there was no value left in their houses, they just stopped paying their mortgages altogether.

Banks eventually foreclosed on those homes and the foreclosures drove prices down even further and put more homes in the negative equity category. This cycle continued, leading to the worst housing crash in almost one hundred years.

What’s happening now…

Again, Americans are seeing their home equity grow. Today, over 48% of all single-family homes in the country have over 50% equity, and yes, some families are tapping into that equity. However, this time around, homeowners are not doing making irresponsible decisions. According to the latest information from Freddie Mac, the total equity being “cashed out” is a fraction of what it was leading up to the crash. Here are the numbers:

2008 vs. Now: Are Owners Using Their Homes as ATMs Again? | MyKCM

Bottom Line

The recklessness that accompanied the build-up in equity prior to the last crash does not exist today. That makes this housing market much more secure than the one we had heading into 2008.

Blog author image

"The Stearns Team" #TeamStearns, #DRE01305251

"The Stearns Team" #TeamStearns Brokered By EXP Realty of Ca. Inc. Broker: DRE# 01878277 Agent: DRE# 01305251 #TeamStearns - Trust, Integrity, Friendship....

Latest Blog Posts

What is the Cost of Waiting Until Next Year to Buy?

Some Highlights:The cost of waiting to buy is defined as the additional funds it would take to buy a home if prices & interest rates were to increase over a period of time.Freddie Mac 

Read More

Homes are a Bargain Compared to Historic Norms

A loaf of bread used to be a nickel. A movie ticket was a dime.  Not anymore. Houses were also much less expensive than they are now. Inflation raised the price of all three of those items,

Read More

Owning a Home Young is the Key to Building Wealth

Homeowners who purchase their homes before the age of 35 are better prepared for retirement at age 60, according to a new Urban Institute study. The organization surveyed adults who turned

Read More

The Best Time to List Your House? TODAY!

You may have heard that the housing market is softening. There is no doubt that buyer traffic has decreased. There are fewer purchasers in the market than there were last month and at this time last

Read More