We’ve all witnessed the remarkable rebound in real estate values—and last week, the scale of that recovery was the subject of a CNBC commentary. “A growing number of homeowners are in the money,” it found; then, “Homeowners are sitting on trillions in tappable home equity.”
Trillions? That’s a number that sounds quite impressive—but also hard to grasp.
To get a handle on the scale of the nation’s real estate recovery in terms that are more meaningful to Litchfield readers, it calls for some imagination. Here’s a try:
If you think of a $345,000 home (today’s U.S. average)—and then of a neighborhood with 30 of those homes per block—a billion dollars’ worth of home equity would consist of 100 blocks of such homes. For Litchfield, that’s would be a pretty large neighborhood, all right; but if you close your eyes and picture such an imaginary hundred-block neighborhood, you’ll have an approximation of what a billion dollars’ worth of real estate looks like.
It’s much harder to get a grip on a trillion dollars’ worth of home equity.
One way is to start out by imagining a magnificent estate owned by a titan of industry. This place has 50 acres of magnificently manicured landscaping; several guest houses; a subterranean garage capable of housing 20 antique autos in an appropriately climate-controlled environment; and an infinity pool overlooking an acre-size manmade pond (there are probably a couple of swans in the pond). Its nine bedrooms (they are actually suites) are part of the 50-room main house. Since it’s in a fabulously exclusive neighborhood, the estate’s value is reasonably pegged at $50,000,000 (fifty million dollars).
So all you have to do is to close your eyes and picture a neighborhood with 20 of those per block—and then, a thousand of those blocks.
There’s your trillion dollars in home equity!
The reason this has anything to do with reality—or with home equity in Litchfield—is that Litchfield homeowners are part of CNBC’s original headline calculation from last week. Between 2012—the bottom of the financial crisis—and today, homeowners across the country are the recipients of a trillion dollars’ rise in home equity.
To be precise, the rebound in home equity actually comes to three trillion dollars! That’s “tappable equity”—dollar values potentially available via refinancing or home equity lines of credit (HELOCs). With mortgage rates currently lower than they were a year ago, it’s not surprising that cash-out refinances have been growing in popularity.
Litchfield may not have any 1,000-block neighborhoods full of 50-acre estates, but we do have a lot of homes whose equity has burgeoned since the low point of the financial crisis. I’m proud that I’ve been able to help many of my clients participate in a share of that good news story. For your next Litchfield real estate venture, I hope you’ll give me a call!
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