Who Stole My Equity?

If you are like many homeowners you take great pride in your home. You should, as you worked hard for it and you work hard to maintain it as well. Heck, over the years you may have made changes to the home that you feel should have helped the value.

So the last few years as you have been getting your tax statements you have probably noticed that the tax value has gone down. Because of that, most likely your taxes went down, and you probably were not that concerned and thought that the city or county had no clue what they were thinking when they assessed your home.

I hate to be the bearer of bad news but the value of your home has gone down along with almost everyone else in Dakota County and throughout the United States. While there are some pocket areas that have maintained their values or even increased, the percentage of homes that have lost value is far greater than those that have not. I saw a statistic that said that about 21% of homes in the area had lost value, and at about 10%. Well, based on what I do and have seen, I would say it is more like 70% of homes, and they have lost anywhere from 20-35%.

What caused this? Greed! When interest rates were so low back in 2003 many not only rushed out to buy a new home but to refinance as well. Purchase transactions saw multiple offers, which in most cases drove up the price of the individual home as well as home prices in general. Many of these homebuyers were taking advantage of the zero-down loan programs that were available at the time, as well as some of the alternative loan programs that were popular. This helped to set the stage for refinances as the values were driven up for all homes. As a result many homeowners refinanced their homes to the fullest amount that they could for various reasons, and even took out equity loans that set them up for having no equity at the time. Many lenders influenced the appraiser to reach certain values for properties even when they were not warranted. This caused an extra stress to the already overinflated values that we were seeing. But hey, real estate is your best investment and real estate values always go up… until now.

Then came the banking and mortgage meltdown, along with the meltdown of higher interest rates causing those unique loan programs to go up in rate. As a result, many started to default on their mortgages and values started to drop.  It was like a domino effect. Foreclosures and short sales increased and values continued to decline. New construction was overbuilt and builders went bust and new homes were able to be purchased at half the cost, thus leading to more equity stripping.

Heck, here in Apple Valley I have heard stories about realtors that had inflated values on homes that they sold and builders that worked in conjunction with them. And I am sure you all saw .

So who stole your equity? We all did. I say that sarcastically, but if you look at it, we all did. We bought a home at its high point, we sold our home at a high point and we refinanced our home at a high point. The appraiser pushed the value, the realtor pushed the value, the lender accepted the appraisal, the large lenders and institutions bought the loans and the Wall Street investors supplied the money. So we all had a part in this. However, we all felt that it was safe, as we had not seen a real estate meltdown like this in our lifetime and definitely not in our market.

So now we have homes listed for sale at values that we saw in the ’90s and with rates the way they are, even more affordable than they were then. There are many great programs out there and the first-time buyer needs to realize that it is still possible to get a mortgage and not to be afraid. These are the ones that we need to stimulate the market. Given that rents are on the rise because of the high foreclosure rate, it is even cheaper to own then to rent.

Refinancing is a little trickier. There are special loan programs that have been set up that allow many to refinance. Don’t be afraid to speak to a lender and see if you possibly can.

As the foreclosures clean out and most importantly the buying market improves we will see the values increase, but not at the rate they did earlier.

Bottom line is that the value of your home now is what the market holds for it to be. And being a homeowner myself, I hate it. But we can’t change it we can only allow the natural progression for the value to come back.

Be patient!