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46% of homeowners expect equity gains in 2016

 

IRVINE, Calif. – Feb. 22, 2016 – Nearly half (46 percent) of all U.S. homeowners with a mortgage expect their equity to increase in 2016, even though three out of five report equity in their homes has already increased during the last three years of the housing recovery, according to research conducted for loanDepot.

Of those who expect their equity to change this year, 85 percent think it will rise as much as 10 percent: 27 percent say between 6 and 10 percent, and 58 percent foresee an equity bump between one and five percent.

Industry-wide reports forecast 2016 annual price gains to range between 2.3 and 4.7 percent. Only 3 percent of homeowners expect their equity to fall in 2016, and 27 percent expect it to remain the same.

More than 100 U.S. housing experts forecast home values will reach an average annual growth rate of 3.65 percent through the end of 2016. Today, more than 49 million homeowners –66 percent – hold a mortgage on their home.

Equity boom: Perception vs. reality

While 57 percent of owners believe their home's value has appreciated in the past three years, the majority (80 percent) underestimate the amount their home has gained. Of those who believe their home's value has increased since 2013, one in four (27 percent) believes it increased between one and five percent.

The Case Shiller 20-city index shows prices rose twice that much, in fact 10 percent from Nov 2013 to Nov 2015.

"Homeowners who bought during the housing boom are regaining equity many thought was lost forever, yet too many are not aware of the equity they have gained, or they are unclear about how to determine changes in their equity," says Bryan Sullivan, chief financial officer of loanDepot, LLC.

Timing is everything

The 2001-2006 housing boom and subsequent 2007-2009 bust were watershed events that changed the way millions of homeowners think about equity. Homeowners who bought before and during the boom – and watched their equity wash away from 2007 to 2009 – have very different views on equity compared to those who bought when prices were lower, post 2009.

  • 64% of buyers who purchased after 2009 believe their home has gained value since 2013 compared to 58 percent of pre-2009 owners
  • 50% of buyers who purchased after 2009 expect to gain more equity this year compared to 43 percent of pre-2009 buyers. Newer buyers may be more bullish on equity gains because they did not experience drastic losses of equity like their pre-2009 counterparts
  • More pre-2009 owners (65%) believe they have adequate equity now to take out a home equity loan compared to just over half (52%) of post-2009 buyers
  • Post-2009 owners are more conservative on using their equity. A majority of owners from both periods say they have always been conservative about accessing their equity, but post-2009 buyers are more so by a margin of 62 to 55 percent.

How much is enough?

Three out of five homeowners (59 percent) say they now have enough equity to take out a home equity loan, while 16 percent don't know how much equity they would need to qualify for a loan. Another nine percent don't know how to calculate the equity in their home.

Only 16 percent of all owners with a mortgage –19 percent of post-2009 owners – say they do not yet have enough equity to take out a home equity loan.

Home remodeling (39 percent), consolidating high interest rate debt or credit cards (29 percent), and saving for retirement (18 percent) top the list of ways owners would use funds from a home equity loan. The Harvard Joint Center for Housing Studies projects annual spending growth for home improvements will accelerate from 4.3 percent in the first quarter of 2016 to 7.6 percent in the third quarter.

Equity conservatives

When it comes to equity, all homeowners tend to be conservative, knowing equity can help them weather downturn economic cycles. While 58 percent said they've always been conservative about using their home equity, 14 percent said the housing crisis has made them even more conservative about.

At the same time, 19 percent said they have no concerns about accessing their equity as long as they stay current on their mortgage, and 5.7 percent don't believe keeping a high level of equity in their homes would protect them from another housing crash, and three percent say they waited a long time to get cash back from their homes.

© 2016 Florida Realtors®

 

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