Surging home equity is all the more important in a declining stock market. But it’s come with rising property taxes and higher hurdles for borrowing.
By Veronica Dagher and Anne Tergesen. Excerpts:
"Americans have hit an odd contradiction: They have amassed $35 trillion of wealth in their homes, yet many feel less well off because of it.
Home equity [the portion of their home they own outright] has climbed nearly 80% since early 2020—up from $19.5 trillion—thanks to a turbocharged rise in house prices. That was about twice the rise in financial wealth including stocks and bonds as of the end of 2024, according to the Federal Reserve.
Yet rising home values also often translate into higher costs, such as taxes. Lots of equity can bring down college financial aid for families. And cashing in on the wealth is difficult: High interest rates and prices have held back home sales—and the prospect of big capital-gains tax bills is spurring some to hold on to the homes."
"homeowners may increasingly look to tap their home equity. However, high interest rates and tight lending standards make that difficult."
"Home equity is calculated by taking the estimated value of a home and subtracting the mortgage debt attached to it. The value isn’t locked in until a sale."
"The average homeowner with a mortgage had $313,000 of equity entering 2025"
"Home prices have increased 47% between February 2020 and February of this year"
"home equity is up even more. That’s because mortgage debt amplifies returns by allowing homeowners to invest the bank’s money, too. When home price gains exceed a homeowner’s mortgage interest payment, the excess return belongs to the homeowner"
"In the fourth quarter of last year, consumers tapped only 0.41% of their available home equity, well below the 0.92% quarterly average for the decade before the Fed started raising interest rates in 2022"
"Homeownership costs, including insurance and maintenance, are a growing burden as well."
"The average tax on single-family homes in the U.S. was $4,062 in 2023, about a 14% increase from $3,561 in 2019"
"Average property taxes rose more than 106% in Akron, Ohio, from 2021 to 2023. They were up 52.7% in Montgomery, Ala., and 66% in Pittsburgh."
"But people are cutting into their savings to pay the tax increases"
"When owners do sell, more owe capital-gains taxes.
Even though home prices have surged since the pandemic began, the amounts sellers can exclude from the capital-gains tax on their profits—$250,000 for single filers and $500,000 for married couples filing jointly—aren’t adjusted for inflation.
"In 2023, approximately 8% of home sales generated profits that may have exceeded the $500,000 capital-gains tax exemption limit for married couples. That’s more than double the share in 2019"
"Capital-gains taxes are calculated by subtracting the home’s purchase price, adjusted for capital improvements like renovations, from the sale price"
"The tax bill can encourage people to hold on to their homes, rather than sell, leaving their home equity untapped."
"Home equity that remains locked up can cost families when it comes to college financial aid."
"Institutions including Colby College, New York University and Emory University sometimes consider home equity as part of their wealth calculations. They are among a group of about 200 schools that use an aid application known as the CSS Profile."
"means $100,000 in home equity could reduce a family’s financial aid eligibility by roughly $5,000"
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