Fewer homeowners tap into equity after the recession
ORLANDO, Fla. – May 17, 2019 – Orlando and Michaela Ortiz are ready to cash out and move up after just two years in their Seminole County home.
The three-bedroom, two-bath home they bought in 2017 for $189,900 has gained enough value that they will make $20,000 when they sell it later this month. They are using the profit as a down payment on a newer, bigger home in Chuluota.
"It was not our plan at all to move this fast," said Ortiz, who works in equipment sales. "But we saw the opportunity, and it all clicked."
Strong equity growth is back in Central Florida, after a few rough years where at one point a majority of homeowners owed more on their mortgages than their homes were worth. Now thousands of Orlando area property owners are rich in equity because home prices have increased 67% since prices bottomed in February 2011, according to the Orlando Regional Realtor Association.
In Orlando, about 413,000 homeowners, or about 80% of all mortgage holders, have built up enough home equity to tap into it, according to Jacksonville real estate data firm Black Knight. And those that have equity have a lot of it, on average $78,700, Black Knight said.
It's reminiscent of the extravagant days of the mid-2000s, when it was common to borrow against homes to pay off credit card debt, buy vehicles and go on vacations. But that's not happening as much this time around, said Greg McBride, chief financial analyst with Bankrate.com.
"Not as many people are borrowing against the equity in their homes," McBride said. "The scars of the 2008 housing bust are still visible."
Jenelle Ferrer, an Oviedo real estate agent who worked with the Ortizes, said some homeowners are using their home equity but doing so conservatively as a down payment on a bigger home or sometimes to downsize to a smaller home in rural areas where prices are lower.
"Some people are taking the equity they have and selling their homes to their adult children for a discount," said Ferrer, owner of Waypointe Realty. "Younger people can't always afford to buy at today's prices, so their parents are giving them a hand."
At Orlando-based FBC Mortgage, CEO Rob Nunziata said borrowers are still skeptical of reducing home equity and accumulating more debt.
"There are a few people doing cash-out refis (refinances), but it doesn't feel like it did before," Nunziata said. "I think that attitude has changed a lot."
Those that are using equity are either remodeling homes or buying a more expensive home, he said. Neither of those moves significantly increase debt or decrease equity.
Lenders are still skeptical of giving out big loans against home equity, too. Standards to get a loan are tougher and lenders won't let borrowers tap all of their home equity for loans, McBride said.
"You used to be able to borrow every penny of (a home's value) and then some," McBride said. "Now they want you to specifically explain what you plan to do with the loan."
Cashing out on home equity was a dangerous move in the early 2000s that left many in trouble, said Jeffrey Fagan, president of the Orlando Regional Realtor Association and an agent with Watson Realty Corp. It still is risky, even with today's real estate market, he said.
Not everyone has completely recovered from the housing downturn that hit Central Florida particularly hard in 2008. At the peak in 2010, more than 55% of borrowers owed more than their homes were worth.
Now, 7.6% of homeowners in Central Florida are still "seriously underwater" and owe at least 125% of their home's value, according to an Attom Data Solutions analysis of the first quarter of 2019. That compares with 21.8% that are "equity rich."
Even after several years of gains, the average selling price of a home in the Orlando area is about $80,000 below the high of 2007.
Most homeowners with overpriced mortgages during the housing bust either lost their homes, paid down their mortgages or sold since then. Still, about 2,000 homes entered foreclosure during the first three months of 2019, according to Attom.
"The whole idea of buying a home and then selling it a few years later is a recent phenomenon," Fagan said. "It's not a good move to buy a home for a short-term investment."
© 2019 The Orlando Sentinel (Orlando, Fla.), Kyle Arnold. Distributed by Tribune Content Agency, LLC.
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