Here's Why Rising Home Prices Could Actually Help the Economy

The median home price in the United States is about 15% higher than it was a year ago. While this is bad news for would-be homeowners, it also means that existing homeowners have a massive amount of equity in their homes. In this Fool Live video clip, recorded on June 29, Millionacres editor Deidre Woollard and senior real estate analyst Matt Frankel, CFP, discuss what this could mean for consumer spending and the U.S. economy.

Deidre Woollard: That's part of what's happening. That's part of why you're not seeing inventory tick up because people are seeing those prices. If they could move, they would, because they can't afford to buy in somewhere else. You're seeing a little bit of that movement happen where the impact of remote work, people leave in California to go to Idaho, for example, that's one that we're seeing. Then that case your dollar goes further. But even then prices in Boise, Idaho are going way up. That is a real concern in this market and it's one of the reasons that it's so stuck. It seems to me in many ways to be one of the most stuck markets I've ever seen.

Matt Frankel: I've seen statistics where about 25-30% depending on who you ask of people who wanted to sell their home over the past year delayed the sales due to the pandemic. Historically July and August are the two busiest months for homes coming on the market. There's some reason to believe we might see an uptake in inventory. But at the same time, if you're just thinking about selling your home, you don't have to. My house has gone up, I want to say 30%-40% since we bought it, depending on which estimate you're looking at. I would still have to buy another inflated house if I sold it. Like Celia said, dealing with bidding wars and all the aggravation. Right now it's a paper gain where you're going to see this come into play is the refinancing market. We saw one giant wave of refinancing last year because interest rates were almost nothing. They were pretty much giving mortgages away. I know I refinanced, I know our colleague Anand Chokkavelu refinanced twice last year because rates dropped and then they dropped again. Pretty much everyone I've talked to refinanced last year. That was before home prices rose by another 15%. Now everyone has 15% more equity in their home. You're going to see another wave of refinances where people take some of that equity out because borrowing against the value of your house is probably the cheapest way to borrow money. If you could borrow money at three percent compared to a credit card at 18% where personal loan is 7% or 8%, it's a no brainer if you want to do some home repairs. The guy who put in my pool said he's backed up by a year-and-a-half now. The specific reason he gave, is that people have a lot more money to borrow from their homes to do projects with. If people wanted a $50,000 pool a year ago, they might not have been able to afford it. Now they can take that $50,000 out of their house and get on the waiting list. They're doing that. Where you're really going to see the home values coming to play is the refinancing market. Mortgage volumes are going to remain elevated for some time. If home prices rise another 20% over the next year, it will happen all over again. Don't make the mistake to think that refinancing boom is dead just yet.