The coronavirus pandemic has shifted how people conduct business and where they choose to live, resulting in massive disparities in both income and lifestyle. But while the period has been a challenge for many Americans, some homeowners are actually growing more affluent simply by owning a home, as prices continue to rocket this year.
Homeowners with mortgages, who represent roughly 62% of all properties, witnessed a 20% jump in their home values in the first quarter from a year earlier, according to CoreLogic. While the mean gain per borrower was $33,400, this represents a collective cash increase of nearly $2 trillion.
The jump is clearly due to active homebuyers, who are scrambling to snatch up any available properties in desirable areas.
“Consumers are facing much higher home prices, rising mortgage rates, and falling affordability, however, buyers are still actively in the market,” said Lawrence Yun, NAR’s chief economist.
Yun said that although mortgage rates have climbed slightly, they are still attractive, and the economic outlook is positive.
“At least half of the adult population has received a COVID-19 vaccination, according to reports, and recent housing starts and job creation data show encouraging dynamics of more supply and strong demand in the housing sector.”
This demand has resulted in a massive gain for homeowners thanks to surging home prices, which CoreLogic said were up over 11% in March, the end of the quarter, from a year earlier. That’s the fastest rise since 2006. Prices climbed even more in April, gaining 13%.
Record low supply has also resulted in bidding wars in markets across the nation, where people will often pay 10-40% higher for in-demand homes.
“Homeowner equity has more than doubled over the past decade and become a crucial buffer for many weathering the challenges of the pandemic,” said Frank Martell, president and CEO of CoreLogic. “These gains have become an important financial tool and boosted consumer confidence in the U.S. housing market, especially for older homeowners and baby boomers who’ve experienced years of price appreciation.”
In addition, this low supply has caused a need for even more new homes, sending homebuilder ETFs like the Direxion Daily Homebuilders and Supplies Bull 3X Shares (NAIL) and Invesco Dynamic Building & Construction ETF (NYSEArca: PKB) surging last year, though they have fallen steeply recently.
New construction has been supported by groups like the National Association of Realtors.
“NAR has made it a priority to be at the forefront of the anticipated economic revival,” said NAR President Charlie Oppler, a Realtor® from Franklin Lakes, N.J. and the CEO of Prominent Properties Sotheby’s International Realty. “We will continue pushing for an increase in housing construction and inventory, with the goal of helping qualified buyers and countless families achieve the American Dream of homeownership.”
One benefit of this rapid climb in home values is that distressed sellers can sometimes get out of their debt with a profit.
As of the beginning of June there were still more than 2 million homeowners in pandemic-related mortgage bailout programs, according to the Black Knight real estate data company. As these plans begin to expire, having home equity will help those needing to escape debt obligations.
“This reduces the likelihood for a large numbers of distressed sales of homeowners to emerge from forbearance later in the year,” CoreLogic chief economist Frank Nothaft said, adding that the average homeowner now has about $216,000 in equity.
This meteoric rise in home values is not expected to continue indefinitely however. Home values are projected to fall off in the coming months as exorbitant prices place many homes out of reach for buyers. Sales have begun to slow, and price drops usually follow such periods of stagnation.
No crash is expected however, since there is still robust demand for housing, and the demographics support that going forward. In addition, today’s mortgage underwriting is far more stringent, lessening the likelihood of a mortgage crisis.
For investors looking for home-related ETFs to invest in, the VanEck Vectors Retail ETF (RTH) is another option to consider, as it contains a healthy allocation to Home Depot, which continues to be favored during the pandemic as homeowners seek to modernize and beautify their living spaces.
For more market trends, visit ETF Trends.