Housing prices continue to climb in our local Clarendon Hills, Hinsdale and Oak Brook communities, making for a highly competitive seller’s market this spring. With these higher home prices though, it’s important to also pay attention to what this increase in value can mean for our local equity.
Increased Wealth & Borrowing Power
When home values rise, the homeowner’s ownership stake grows. Subsequently, the homeowner’s loan balance then remains the same (or decreases) while the property value increases. This is an attractive place to be for a homeowner, as they are getting that much more out of their home while not paying more on their mortgage.
This strong equity can also put homeowners in a position where they are eligible for better loan terms, because they are gaining such value from their property ownership. Again, this is an attractive place for homeowners to be, as better loan terms can make the entire home buying and selling process both easier and more attainable.
Reduced Costs
An increase in home value and equity can offer home buyers the opportunity to eliminate private mortgage insurance (PMI). Even if buyers put down less than 20% when purchasing, a rising home value can bring the loan-to-value (LTV) ratio down to 80% or below. In doing so, homeowners can request the cancellation of PMI since their equity is higher.
Perpetuating the Cycle
Let’s look at a real-world example of how rising prices are translating into increased equity.
This spring, Mike McCurry Group has presented numerous offers on behalf of buyers, and in many cases, these homes have received multiple competing bids. Only one buyer walks away with the winning offer, which leaves several other motivated buyers still actively searching.
Those buyers quickly shift their focus to the next home that hits the market then—often driving up competition again. This ongoing cycle of strong demand and limited supply continues to push prices higher, which in turn builds equity for current homeowners.
Potential Downsides
As it often tends to go with a seemingly good thing, there are also other sides to consider with rising home values. In the case of higher home value and therefore higher equity, one consideration is property taxes. As home values rise local tax assessments often follow, leading to higher property tax bills.
Another area for consideration is insurance premiums. A higher home value usually results in higher homeowner’s insurance premiums to cover the cost of rebuilding. Homeowners need to keep this in mind when selecting their homes and corresponding insurance policies. While it is desirable to have strong home equity, this can come at a price in the form of higher insurance premiums.
A final area to be aware of with higher home equity is the barrier to entry for new buyers. While current homeowners benefit from the rising equity, this increase in value typically makes it more difficult for new buyers to competitively enter the market. Especially for those searching for a home as first-time home buyers, there needs to be an awareness that the increase in home value and home equity can make it more difficult to successfully purchase a home.
Now is an excellent time to list a home in our local market, to take advantage of rising home values and increased local equity. At The Mike McCurry Group we also have access to proprietary technology like Buyer Demand by Compass which shows sellers how many serious buyers are actively searching for homes like theirs and at what price points. Learn more by contacting our team today.