Equity Give Homeowners Options

Americans have seen the equity in their homes increase by 29.3% year over year in the fourth quarter of 2021 according to the CoreLogic Homeowner Equity Insights. The average home equity gained $55,000 during the same period.

CoreLogic’s Home Price Index reported a 19.1% increase in appreciation for the previous twelve months ending in January 2022. This increase in value is fueling the increased equity that homeowners are experiencing.

Some homeowners are doing cash-out refinancing and using the funds for a variety of purposes like home improvements, investing, saving for retirement, college or rainy-day funds.

Other homeowners are seeing the increased value of their homes as an opportunity to move up to a home that meets more of their current lifestyle. In some cases, adult children have moved back home, and in others, working remotely has made their current home not as ideal as it once was.

Homeowners now realize that their home has been quite the investment and are willing to re-invest in a larger home that meets their current needs. With their increased equities and mortgage rates still under 4.00%, they can get into a home for a relatively small increase and the higher value home will continue to increase.

One way to justify moving to a larger home is to estimate what your equity would be in the old home in a specified number of years from now compared to selling it and buying a larger home to see what the equity would grow to in the same period.

A $400,000 home appreciating at 4% annually would be worth $526,000 in seven years compared to a $600,000 home appreciating at the same rate that would be worth $789,000 in the same time frame. This doesn’t tell the whole story because the mortgage amounts are different.

The comparison in the table below doesn’t show the higher payment on the larger home but can be explained by the benefits of enjoyment and practicality of having a larger home to live in during the comparison period.

Hold or Sell & Buy Analysis

Hold Current Home
Current Value	$400,000
Value in 7 years at 4% appreciation	$526,373
Unpaid Balance … Original mortgage $225,000 @ 3.5% for 30 years	$191,350
Wealth Position	$377,998

Sell Current Home & Buy Another Home
Equity from Sale after 7.5% sales costs	$178,650
Purchase Price of New Home	$600,000
Value of New Home in 7 years	$789,559
Unpaid Balance – 75%Mortgage @ 4% for 30-years EOY 7	$387,268
Wealth Position	$424,863

Difference in Positions	$46,864
Percentage Increase	12.4%