Homeowners had amassed record equity as crisis began
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In the first quarter of the year, homeowners amassed a record $6.5 trillion in what is known as “tappable” home equity — that is, the amount of equity homeowners can borrow against and still have a 20% cushion. That’s the finding from mortgage data firm Black Knight.
And though the first quarter ended in March, just as the pandemic was really shutting down business, home values have only kept rising since then, said Black Knight’s Andy Walden, as buyers compete for a limited supply of houses.
“They’re seeing these record-low interest rates, and they’re out there shopping for homes and kind of sustaining those home prices out there in the market,” he said.
Meanwhile homeowners, perhaps spooked by the last housing downturn, have also been reluctant to draw down their equity through cash-out refinancing or home equity loans, and lenders are more reluctant to let them.
“Even those homeowners that are out there tapping into equity are leaving more meat on their bone,” Walden said. “They’re leaving more equity sitting in their homes and not fully tapping themselves out like we saw back in [2005-2008].”
That housing wealth leaves homeowners in better shape to withstand the current crisis. All that equity made it possible for Congress to let borrowers with federally backed mortgages defer payments for up to a year, said Susan Wachter, a finance professor at the Wharton School.
“A majority of Americans are homeowners, and for them, they’re not going to lose their home,” she said. “And in fact they can, if necessary, even draw on their mortgage by not paying” to cover other necessities.
The 35% of households that rent don’t have that luxury. More renters are losing their housing as restrictions on evictions lift around the country.
“It’s an extraordinary story of haves and have nots, where the system is set up to support homeowners, but it doesn’t protect renters,” she said.
Homeowners, generally, are in better financial shape, said William Emmons, lead economist at the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis.
“I would say it’s a correlation, not a causation,” he said. “People who are homeowners tend to have stronger financial positions, tend to be older, tend to have more education, higher income, higher wealth,” he said.
COVID-19 Economy FAQs
Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?
This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.
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India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.
Can businesses deny you entry if you don’t have a vaccine passport?
As more Americans get vaccinated against COVID-19 and the economy continues reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.
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