There’s a paywall, so here are some highlights: “Home equity 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.”

 

Everyone talks about home prices, but this is the real number. Home wealth has almost doubled in five years.

 

This can be confusing because home prices only went up by about half in that time. So why did home equity almost double?

 

The article explains, rather elegantly, I thought: “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.”

 

I’ve said this before: the bank puts up 80% of the money to buy a house but gets 0% of the profits. That's a pretty good deal for you.

 

So homeowners are sitting on a fortune in home equity. The problem now though, is the piggy bank is full but hard to open.

This may be a good thing. Maybe it should be hard to get money out of your house.

 

As the saying goes, “Any fool can make money. It takes someone smart to hold on to it.” 

 

A little-known fact about the 2008 housing crash was that most foreclosures were on refinance loans, not purchase loans. It wasn’t that people were buying homes they couldn’t afford; it was that they bought homes they could afford, then milked them like a bottomless ATM, and then couldn’t afford them when prices started going down or their rates adjusted. 

 

This is the main catch with your 80% bank partner. You get the profits, but only if you make the monthly payment. If you don’t, they take the house and sell it to someone else.

 

Paying down your mortgage seems to be back in vogue and maybe a safer choice in these turbulent times.

 

Our adjustable rate on our house is up in two years—maybe a 15-year fixed is in the cards for us when it’s time to refinance. The rates are lower, and the best part is that half your payment goes toward the principal. We will see.

But this too shall pass, and the joy of long-term investing and real estate holding is knowing this country is great. 99% of us get up every day looking to work hard, innovate, contribute, and grow to make life better for our families and communities. And that will continue long after this news cycle is over.

And now here is some great real estate advice: If you are buying a house and the seller agrees to lower the price by $25K, congrats, but don’t reduce the price! Get the money as a credit. Lowering the price will lower your mortgage payment by a few hundred dollars and your property taxes a smidge. It will take you more than 10 years to get that money back. Instead, get the cash in your pocket now. Imagine I offered you $25K or $200/mo for ten years. Obviously, you’d take the former. That’s a seller credit vs. a price reduction.

Until next week,