In Seattle — home appreciation exceeded the median household income over the past year.
- Home values in Seattle have been appreciating more than 3.5 times faster per working hour than the cities’ minimum wage workers earn.
- In Seattle, the typical homeowner is gaining $54.24 of equity in their home every hour they’re at the office. The city’s hourly minimum wage is $15.00.
- The typical U.S. homeowner is gaining $7.09 of equity in their home every working hour, $0.16 less than federal minimum wage.
The rapid pace of home value appreciation over the past year may present homeowners in Seattle with an interesting dilemma: Why work a 9-5 slog, when you can sit back and collect substantial hourly home equity “earnings” instead? Homeowners can’t just spend the money they earn in home equity like they would a paycheck. They essentially have two options: They can sell their homes, buy something cheaper and pocket the difference; or, they can take out a home equity loan or a cash-out refinance.
The first option will prove challenging for many existing homeowners. The National Association of Realtors recently cut its forecast for annual home sales in 2018 and it’s not expected to increase from 2017 levels. A big part of the problem is low inventory: There are few homes for buyers to choose from, and that’s driving the pronounced uptick in prices.
Looking back at 2017, the number of homes on the market in the Seattle metropolitan area had dropped 10 percent from the previous year—fueling Bidding Wars and a tough market for buyers that was felt all year long. Now, at that same time in 2018, inventory is even worse, dropping an additional 19 percent from this time last year, according to the latest reports.
This is a cyclical problem, of course, and more homeowners choosing to sell would reverse the trend. But the higher prices, especially among starter homes at the lower-end of the market, make it harder to afford moving. Indeed, experts predict that 2018 will represent the most competitive spring home buying season on record.
Meanwhile, the share of refinance activity comprised of cash-outs — refinanced mortgages that are higher than the existing balance on the original loan, which allow homeowners to tap into their home-equity proceeds — is the highest it’s been since 2008.
Of course, in order to capitalize on these gains, a homeowner would need to sell their home – the very goose that’s laying these golden eggs for them in the first place.
Still, particularly for homeowners that have already or are very close to paying off a mortgage, this supplemental “income” – especially if allowed to accumulate over several years – can essentially serve as a kind of second job that pays directly to a homeowner’s bottom line.