In these cities, homeowners earn more per hour from rising property pr
Home prices are rising so fast in certain markets that homeowners essentially make a sizable second income from their properties alone.
Homes in San Jose, Calif., appreciated the most in value on an hourly basis — with home values there increasing $99.81 every hour between February 2017 and February 2018, according to a new report from Zillow.That’s more than seven times larger than the city’s hourly minimum wage of $13.50.
Overall, homeowners of median-valued properties in 24 of the country’s 50 largest cities saw their home equity increase more per hour than their local minimum wage. And nationwide the average U.S. home increased 7.6% over the past year, translating to a gain of $7.09 per hour. That figure is just shy of the federal minimum wage of $7.25 per hour.
In San Jose and five other cities — San Francisco, Seattle, New York, San Diego and Oakland, Calif. — home appreciation exceeded the median household income over the past year.
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.
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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 homebuying season on record.
Fewer homeowners may be willing or able to turn to home equity loans these days thanks to how the new tax law allows homeowners to deduct the interest on these loans.
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.
But this presents a risk to the overall housing market: Cash-out refinancing activity helped fuel the foreclosure crisis that precipitated the Great Recession. In many cases, homeowners spent all the money they gained through the cash-out refinancing, leaving them with little money on hand.