According to the Federal Reserve’s Flow of Funds report released This Week in Real Estate, the collective value of all owner-occupied homes reached a record high of $26.1 trillion in the first quarter; 15% higher than the peak prior to the ‘great recession’ in 2006. Below are a few highlights from the first week of June that influence our business:
U.S. Home Values Reach a Record High of $26.1 Trillion in Q1. The value of all U.S. owner-occupied homes increased to a record $26.1 trillion in the first quarter, according to a Federal Reserve report released Thursday known as the Flow of Funds. That was a gain of 4.3% from a year earlier, the slowest annualized increase since 2012. The collective value of U.S. homes is now 15% higher than the bubble peak reached in 2006. Once that bubble popped, it was a decade before values recovered to the same level. As home values rose in the first quarter, so did homeowner equity, meaning the worth of a home compared to its mortgage. Americans owned 60.4% of their homes in the first quarter, the highest level of equity since 2002. An increase in home equity traditionally has been a support to the U.S. economy as Americans either refinance their first-lien mortgages at higher balances, known as cash-out refis or get home equity loans in a junior lien position. That supports consumer spending, which accounts for 70% of the U.S. economy. Cashed-out equity typically is used either for renovations, college tuition, or to pay off credit card debt, according to Fed economists. Americans converted $19 billion of their home equity into cash in the first quarter, the largest amount since the year-earlier quarter when it was $22.7 billion, according to a Freddie Mac estimate. Most were through cash-out refis, at $16.7 billion, while home equity loans accounted for $2.3 billion.
Borrowers Are Sitting on Record Amounts of Home Equity. The amount of equity in mortgaged real estate increased by about $486 billion in Q1 2019 from Q1 2018, an annual increase of 5.6%, according to the latest CoreLogic Equity Report. The first quarter’s annual increase in home equity marked the lowest such gain in equity since Q4 2012, which reflects slowing price growth. Despite the lower growth rate, borrower equity hit a new high in Q1 2019, and borrowers have gained $5.6 trillion in equity since the end of 2011 when equity stopped declining. The nationwide negative equity share for Q1 2019 was 4.1% of all homes with a mortgage, more than 20 percentage points lower than the peak negative equity share – 26% – recorded in Q4 2009. The number of underwater properties decreased by 268,000 from Q1 2018 to Q1 2019.
AD&C Loan Volume Expands at Start of 2019. After a slight dip at the end of 2018, a consequence of rising interest rates, the volume of residential construction loans increased by 1.5% during the first quarter of 2019. The expansion of construction loans mirrors an NAHB survey showing a slight easing of credit conditions at the start of 2019, with an average 6% rate for speculative single-family construction financing. Tight availability of acquisition, development, and construction (AD&C) loans has been a limiting or cost factor for home building growth, but easing credit conditions and a growing loan base helped expand residential construction activity, albeit modestly. According to data from the FDIC and NAHB analysis, the outstanding stock of 1-4 unit residential construction loans made by FDIC-insured institutions increased by $1.1 billion during the first quarter of 2019, placing the total amount of outstanding loans at $80 billion. On a year-over-year basis, the stock of residential construction loans is up just under 6%, the lowest rate since 2013. Since the first quarter of 2013, the stock of outstanding home building construction loans has nonetheless grown by 97%, an increase of $39 billion.