- Rising home values aren’t all sparkle and roses for homeowners. It can be bad news.
- If you’re looking to downsize, a smaller property may cost you just as much as your current home.
- Taxes and insurance can go up, too, and moving may be out of the question.
It’s easy to feel giddy when you see the value of your home starting to surge, and that’s especially true if you purchased a property in the last few years. It’s nice to have some instant equity in a home you recently bought, particularly if you want to access it via a home equity loan or line of credit. Your home equity also adds weight to your
which is one of the most accurate measures of a person’s wealth.
Nearly all people who own property in the US have seen the value of their residences rise over the last few years. A February report from the National Association of Realtors revealed that home prices across the country had increased 30% nationally since 2019. “As a result, a typical home is about $80,000 more expensive than pre-pandemic,” wrote the authors of the report.
But not everyone is feeling happy about the rising value of their property, and for more reasons than one. In fact, there are quite a few ways having more equity can actually make Americans feel less wealthy than they were before.
1. Rising interest rates and home values are making it hard for boomers to downsize
According to financial advisor Colton Moore, who works for the banking app Stash, empty-nesters are currently facing a convergence of issues when trying to move from their “forever homes” to smaller properties. Sure, home values may be up for the homes they live in now, but the values for the smaller homes they want to purchase are up, too.
In the meantime, interest rates for mortgages are significantly higher than last year, which makes borrowing money much more expensive. In fact, today’s average rate for a 30-year mortgage is at 5.46% as of this writing, which is up significantly from the average rate of 3% from exactly one year ago.
Moore says that property values have increased so that downsizing may not allow for any savings, or be financially viable at all.
“This forces people to stay in homes that are larger than they need and cost more to maintain,” he says.
2. The costs of homeownership continue to surge
Moore also points out that rapidly rising home values are causing properties to be assessed at values higher than ever, directly raising property taxes and the cost of homeowners insurance.
As a result, homeowners are seeing their monthly housing costs increase even if they have a fixed mortgage payment or own their home outright. Further, potential homeowners who are trying to purchase a first property are seeing higher than ever home-related costs being built into their future mortgage payments via escrow accounts.
3. Moving for any reason is a challenge
Real estate expert G. Brian Davis of SparkRental says he has heard many homeowners talk about feeling locked in place by their current low fixed-rate mortgage and sharply appreciated home. This makes sense when you consider the fact that many homeowners were able to refinance their mortgages to rates below 2.5% throughout 2021, and since the rates now are well over double that offered.
“They worry that if they move, they’ll get hit twice,” says Davis. “They’ll pay far higher interest on a mortgage, and they’ll have to pay the full bloated price for their next home.”
The home equity they access when they sell their home will cushion the latter blow, but not the former. That makes it hard to upgrade homes, or to move to areas with a higher cost of living, he says.
While not being able to upsize or downsize can be an issue on its own, Davis says this can prevent Americans from moving to areas with better job opportunities.
“That lack of mobility fuels the disconnect between employers’ needs and employees’ opportunities,” he says.