Record high home prices mean you may have cash hidden in your home

Home prices are on a tear again across much of the nation after falling for much of last year. That means giving back to homeowners the equity they lost.

Home prices in June hit record highs in 60% of U.S. markets, according to a new report from Black Knight, set to be released Monday. Its national home price index hit a new high in June, up 0.8% from June of last year — a stronger annual growth rate than May.

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Nearly every major market saw gains month to month, with the overall index gaining 0.67% from May to June.

Home prices are rising again, because there is far too little supply to meet the current demand. Higher mortgage rates have been a huge deterrent for current homeowners to list their homes for sale because they don’t want to trade up to these higher rates on another purchase.

That home price growth has made homeowners wealthier again. Home equity levels are now back to within 3% of last year’s peaks.

Total equity hit over $16 trillion with tappable equity, which is the amount most lenders will allow you to take out while still leaving 20% equity in the home, rising to $10.5 trillion, just 4% off its 2022 peak. Per homeowner, that is roughly $200,000 in cash sitting in the house, ready for the taking.

As a result, negative equity, or so-called underwater borrowers, are nearly nonexistent in today’s market. Just 344,000 homeowners currently owe more on their homes than the properties are worth.

While that number is a 70% jump from this time last year, according to Andy Walden, Black Knight’s vice president of enterprise research strategy, “everything is relative.”

“There are less than half as many underwater homeowners than there were in 2019 before the onset of the pandemic, with only 3.9% having less than 10% equity, down from 6.6% in 2019,” Walden said.

Of course, all of this virtually destroys home affordability for today’s potential buyers: Affordability stands at a 37-year low.

As a comparison, current homeowners, most of whom carry mortgages with rates between 3% and 4%, need just 21% of the median household income to make the average monthly mortgage payment — principal and interest. Prospective homebuyers today are looking at paying more than 36% of their income on that payment thanks to higher home prices and higher rates.

The average rate on the popular 30-year fixed mortgage hit 7.2% Thursday, according to Mortgage News Daily. Just two years ago it was around 3%.

“The small relative share of income needed for existing homeowners to meet their mortgage obligations, along with the strong credit quality of today’s mortgage holders and an acute focus on loss mitigation by the industry at large, are all contributing to today’s 16-year low in seriously delinquent mortgages,” Walden said.

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