Over the last six years, we have experienced strong price appreciation in downtown Boston condos which has increased home equity levels dramatically. As the number of “cash-out” refinances begins to approach numbers last seen during the crash, some are afraid that we may be repeating last decade’s mistake.

However, a closer look at the numbers shows that Boston Midtown homeowners are being much more responsible with their home equity this time around.

What happened then…

When real estate values began to surge last decade, people started using their homes as personal ATMs.  Boston Beacon Hill condos homeowners would refinance their condominiums and convert their equity into instant cash (known as “cash-out” refinances). Because homes were appreciating so rapidly, many homeowners tapped into their equity multiple times.

This left homeowners with little-or-no equity left in their homes, so when prices started to fall many homeowners found their houses in a negative equity situation (where the mortgage amount was greater than the value of the home). When some of these homeowners saw that there was no value left in their houses, they just stopped paying their mortgages altogether.

Banks eventually foreclosed on those homes and the foreclosures drove prices down even further and put more homes in the negative equity category. This cycle continued, leading to the worst housing crash in almost one hundred years.

What’s happening now…

Again, Americans are seeing their home equity grow. Today, over 48% of all single-family homes in the country have over 50% equity, and yes, some families are tapping into that equity. However, this time around, homeowners are not doing making irresponsible decisions. According to the latest information from Freddie Mac, the total equity being “cashed out” is a fraction of what it was leading up to the crash. Here are the numbers:

Boston condos for sale

Boston condos for sale

 

Bottom Line

The recklessness that accompanied the build-up in equity prior to the last crash does not exist today. That makes this housing market much more secure than the one we had heading into 2008

Beacon Hill condos for sale

Boston condos for sale

Beacon Hill condo for sale

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Condos around Beacon Hill to rent:

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