COVID-19

Homeowners had amassed record equity as crisis began

Amy Scott Jul 6, 2020
Heard on: Marketplace
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A neighborhood in San Francisco. Home values have only kept rising as buyers compete for a limited supply of houses. Justin Sullivan/Getty Images
COVID-19

Homeowners had amassed record equity as crisis began

Amy Scott Jul 6, 2020
A neighborhood in San Francisco. Home values have only kept rising as buyers compete for a limited supply of houses. Justin Sullivan/Getty Images
HTML EMBED:
COPY

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.

They also tend to be white. Black and Latino people are much less likely to own their homes, and their houses tend to appreciate more slowly, contributing to the wealth gap.

COVID-19 Economy FAQs

With a slow vaccine rollout so far, how has the government changed its approach?

On Tuesday, Jan. 12, Health and Human Services Secretary Alex Azar announced changes to how the federal government is distributing vaccine doses. The CDC has expanded coronavirus vaccine eligibility to everyone 65 and older, along with people with conditions that might raise their risks of complications from COVID-19. The new approach also looks to reward those states that are the most efficient by giving them more doses, but critics say that won’t address underlying problems some states are having with vaccine rollout.

What kind of help can small businesses get right now?

A new round of Paycheck Protection Program loans recently became available for pandemic-ravaged businesses. These loans don’t have to be paid back if rules are met. Right now, loans are open for first-time applicants. And the application has to go through community banking organizations — no big banks, for now, at least. This rollout is designed to help business owners who couldn’t get a PPP loan before.

What does the hiring situation in the U.S. look like as we enter the new year?

New data on job openings and postings provide a glimpse of what to expect in the job market in the coming weeks and months. This time of year typically sees a spike in hiring and job-search activity, says Jill Chapman with Insperity, a recruiting services firm. But that kind of optimistic planning for the future isn’t really the vibe these days. Job postings have been lagging on the job search site Indeed. Listings were down about 11% in December compared to a year earlier.

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