Housing wealth sets unprecedented gain, but there are early signs market is cooling

Houses in Hercules, California, US, on Tuesday, May 31, 2022. Homebuyers are facing a worsening affordability situation with mortgage rates hovering around the highest levels in more than a decade.

The homeowners are making a lot of money. The nation's home equity has reached new highs due to rising home prices.

According to a new analysis from Black Knight, the amount of money mortgage holders could pull out of their homes in the first quarter of this year was an all time high. Since 2005, the company has tracked the figure.

In April, mortgage holders had a 34% increase in tappable equity. The previous peak of total tappable equity was in 2006 It works out to an average of about $200,000 per homeowner.

High-credit borrowers with low mortgage rates hold most of thepable equity. Almost three-quarters of the borrowers have a rate below 4%. The rate on the 30-year mortgage is high.

Prospective buyers are being priced out of the market due to the rise in home values. Homeownership has been put out of reach for some due to rising mortgage rates.

Ben Graboske, president of Black Knight Data, said, "It is a bifurcated landscape, one that grows ever more challenging for those looking to purchase a home but is also a boon for those who already own and have seen their housing wealth rise substantially over the last two years This could be the best or worst market.

There are signs that the housing market is cooling. Black Knight reported that home prices were up 19.9% in April, down from the 20.4% increase seen in March. It is possible that the slowed growth is an indication of rising rates. Graboske said that April's decline is more likely a sign of deceleration caused by the modest rate increases in late 2021. It will take time for the March and April rate spikes to be seen.

Home prices have historically cooled due to rising interest rates. There are about 820,000 fewer active listings than a normal spring season.

The current market conditions mean that homeowners are less likely to sell their homes and more likely to use their equity for renovations. Home equity lines of credit are a better option as an owner wouldn't want to use their first mortgage as a source of cash.

Home improvement spending is projected to increase this year, according to a recent report.

Sophia Wedeen, a researcher in the Remodeling Futures Program at the Center, said that record breaking home price appreciation, solid home sales, and high incomes are all contributing to stronger remodeling activity in the South and West.