Home prices have steadily increased, adding value, wealth, and equity for property owners across the country. Thanks to an increase in value, home equity (the portion of the property held by the legal owner) has also increased. High equity brought by rising prices has made refinancing more attractive, especially if you are interested in a cash-out refinance. (The more equity you have, the more cash you can take out.)
Predicting the real estate market is, we must admit, extremely difficult. Even the most educated, experienced, and meticulous analysts miss the mark on occasion. But sometimes, in fact often, analysts get it right. Those of us in the industry, as well as homeowners and future buyers, should pay attention.
What will the market do in the future, and what does this mean for American homeowners? One analyst in particular says that the market will drop in the near future. If this economist is right, it could be the right time to refinance your home and take advantage of pent-up equity.
MarketWatch, one of the leading online sources for marketplace and financial news, reports that Ian Shepherdson, the chief economist at Pantheon Macroeconomics, predicts a decline in the pace of home sales this year. In 2022, according to Shepherdson, home sales will drop by roughly 25% compared to 2021.
Why this prediction? Shepherdson points out that mortgage applications, a strong indicator for future home purchases, are down more than 8% compared to this time last year. Refinancing is also in decline, dropping by 50% compared to a year ago.
Rising interest rates, market saturation, and skyrocketing home prices have likely played into the decline for mortgages, and could (if the prediction is correct) contribute to a cooling real estate market.
For homeowners, the time may be right to cash in on the increased prices. The market could cool, so it’s possible that the rate of value in you home will steadily level off. By this, we don’t mean it will decline (that’s possible, but unlikely in most areas), but merely that you’ll no longer see the rapid increases.
Safely Cash-In on Your Home Equity Windfall
Why does the market matter to homeowners? Obviously people who are selling their properties are going to benefit when it’s time to sell, as their properties will fetch a higher value. But if you want to use home equity towards a cash-out refinance, you could benefit as well.
Suppose you purchased a home in 2017 for $250,000, which at the time was right around the median U.S. home. You used a 5% downpayment, which was $12,500, leaving you with a loan $237,000. The loan was for 30 years with a 3% interest rate.
After five years of making payments, you probably have a remaining balance of roughly $216,000, give or take depending on the specifics of your loan.
If your property had stayed at the same value, you would have equity of roughly 13.6%. Usually, you would need about 20% or higher equity to refinance, so this amount may not be enough.
But properties rarely stay the same in value. According to Redfin, the median price for a home is now $388,965. For simplicity, let’s assume your property is now valued at $390,000. Your loan has stayed the same, and with payments you still have a balance of $216,000. But your equity has soared thanks to rising home values. Because of property appreciation, you have equity around 45%, which is plenty for most refinancing options.
Because of rising prices, you have increased your equity by roughly 30%. Perhaps it’s time to use that equity windfall!
Why Refinance Now?
There are many reasons that homeowners of all types refinance their properties. When you have equity in the home, you essentially have a locked in savings account. Your home is a valuable asset, and while it’s great to have ownership of a property, that money is locked in place; until you sell the property, you can’t use the money for any other purpose. It just sits and does nothing.
But what if you want to invest that money? What if you want to repair the home? What if you want to use the funds to start a new business? With cash-out refinancing, you can.
Cash-out refinancing essentially lets you convert equity in the home into cash. In many ways, it allows you to turn increases in home values into real, liquid, useable money in your bank account.
Most industry analysts also believe that interest rates will rise. This means that if you wait, you could be paying more for your cash-out refinance in the long run. Waiting for interest rates to climb could result in thousands of dollars in additional costs.
So if you’re thinking of a cash-out refinance, you need to start the process before this window of opportunity closes.
Ready to Help with Your Refinance
If you are ready to refinance your home loan, contact our staff today. We’ll help you unlock the value of your home so you can use it for investments, home remodeling, or the purchase of a second property.
The market may have peaked, and interest rates could be rising. The time is right to refinance, so contact our team right away!