Sunday, August 15, 2021

More Equity In Your Home - Now What?

With the rising home prices, many home owners are seeing their equity increase dramatically. This is not necessarily an unmixed blessing since the value of the dollar is falling as inflation reduces everyone's purchasing power. But still, you have an asset that is certainly worth more than it was a year ago.

So now, what are you going to do about it, and will you benefit or get burned? There are several options. You may see the increased value as an opportunity to sell your property and buy a better, or larger one. I hate to carry bad news, but those better and nicer houses are hitting higher prices as well. Your higher price will probably give you a better down payment, but, unless there is a source for more money, it will also get you a larger mortgage, even though it is moderated by the fire sale interest rates.

Free Cash?

You do have the opportunity to pull cash out by way of a refinance or HELOC. On the plus side the proceeds are not taxable. If you are stuck with PMI, the increased value may let you ditch the extra expense.

However, it is not free money. It feels good to get a big check, but you are signing up for more payments that do have to be paid, The larger payments may put your home at risk if things begin to go badly. As much as some progressives would like to see it, eviction moratoriums cannot go on forever.

What Do YOU Want To Do?

On the other hand, If you still have your heart set on a bigger, better home, the increased borrowing power your home affords may just be the way to make your current home fit the bill – even in the era of increased material prices. This is called forcing the value to increase instead of merely waiting for inflation to take a hand.

If you are looking to invest, the equity in your property could provide the capital to get you going. Real estate purchased now may be at the top of the market or it may be higher than last year but cheaper than next year. In that case, if the property cash flows, paying a little more than in the past may not be such a big deal as historically when houses become more expensive and fewer people can afford them, more people turn to renting – and those prices go up as well.

Inflation? Going Up Or Down?

Speaking of inflation and increased prices, it is anyone's guess what the future holds. The people in DC believe the inflationary spike is only temporary. If this is true, the housing prices that have been rapidly rising may just as rapidly come down in a repeat of the housing bubbles of the past.

On the other hand, others believe the monetary polices that put more dollars into the market without real productivity increases will keep food, energy and housing prices on the upward path. I was polishing my crystal ball but it still seemed a bit cloudy.

The best path depends, in part, on which way the market goes and in part, what your goals are. You could end up more valuable assets or you could find you owe too much on your home to sell it, or even to stay in it. Unless you have a particular purpose for what ever you do – you may decide not to do anything at all.