Housing Equity Increased in 2013

Source:  National Association of Realtors – December 20, 2013, in Economist Commentaries, by Ken Fears, Manager, Regional Economics and Housing Finance Policy

With the end of 2013 closing in, it is time to take stock of the impact from the strong 2013 housing market.  Home price growth was robust in 2013 compared to 2012 and is currently forecast by NAR Research to finish the year 11.3% stronger.   This improvement is important for the market as it has created equity for homeowners, boosted buyer confidence, and pulled many underwater homeowners into positive equity positions.

A borrower who purchased a median priced home[1] in 2004 and held it for nine years, the current median tenure of a homeowner according to NAR’s annual Profile of HomeBuyers and Sellers, would have $28,114 in equity from the combined benefit of price appreciation and paying down the mortgage principle.  A borrower who bought a median price home in 2012 would have more than $23,000 in equity.

It is important to note that borrowers who purchased in 2006 and 2007 at the peak of the market and thus those who experienced the sharpest price declines are now nearly in positive equity.  A person who purchased in 2006 and owned through 2012 (not pictured) would have been underwater by roughly $28,200, but by 2013 this gap was down to $4,700.  Continued price growth in 2014 will help to further ameliorate this gap.  Homeowners who purchased since 2007 are in positive equity.

Even through the visitudes of the great recession, for most homeowners housing remains an effective vehicle for building equity and wealth.

[1] With a 10% downpayment at the prevailing average 30-year fixed mortgage rate

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