This Real Estate Market Is the Strongest of Our Lifetime

When analyzing the present data, one standout aspect is the remarkable strength of the housing market. It is evident that this housing market is one of the most robust and stable in our lifetime, if not the strongest.

Let's examine two key factors that support this assertion.

1. Current Mortgage Rates on Existing Mortgages:

Let's begin by considering the current rates on existing mortgages. According to the Federal Housing Finance Agency (FHFA), as of the last quarter of the previous year, more than 80% of existing mortgages had rates below 5%. This is a significant statistic. Furthermore, over 50% of mortgages have a rate below 4% (refer to the graph below). Despite media discussions about a possible foreclosure crisis or an increase in homeowners defaulting on their loans, it is important to note that homeowners with such favorable mortgage rates will do their utmost to maintain their mortgage and remain in their homes.

This is because acquiring another house or even renting an apartment would likely involve higher costs compared to their current mortgage payment, which is more affordable. Even downsizing might prove more expensive given the current higher mortgage rates. Consequently, the substantial number of homeowners with low mortgage rates provides a solid foundation for the housing market today and helps prevent a situation where a wave of foreclosures floods the market, as occurred in 2008.

2. Homeowner Equity:

The second factor to consider is the significant amount of homeowner equity presently available. According to the Census and ATTOM, approximately 68% of homeowners have either paid off their mortgages entirely or have at least 50% equity (see chart below). In the industry, this is referred to as being "equity rich." This fact holds great significance because, when reflecting on the situation in 2008, some individuals were forced to abandon their homes due to owing more on their mortgages than the homes were worth.

However, the current scenario differs greatly as homeowners have amassed considerable equity in just the past few years. Such substantial homeowner equity plays a crucial role in preventing a new influx of distressed properties into the market, akin to what was witnessed during the housing market crash. Moreover, it solidifies the foundation of today's housing market, making it exceptionally strong.