3 Ways Rising Property Values ​​Are Actually Bad For Homeowners

  • Rising home values ​​aren’t all rosy for homeowners. This may be bad news.
  • If you are considering downsizing, a smaller property may cost you as much as your current home.
  • Taxes and insurance may also increase, and moving may be out of the question.

It’s easy to get dizzy when you see the value of your home start to rise, and that’s especially true if you’ve purchased a property in the last few years. It’s great to have instant equity in a home you recently purchased, especially if you want to access it through a home equity loan or line of credit. The equity in your home also adds weight to your

net value

which is one of the most accurate measures of a person’s wealth.

Almost everyone who owns a property in the United States has seen the value of their home increase in recent years. A February report from the National Association of Realtors found that home prices across the country have risen 30% nationally since 2019. “As a result, a typical home costs about $80,000 more than before the pandemic,” the report authors wrote.

But not everyone is happy with the rising value of their property, and for more than one reason. In fact, there are many ways that having more equity can make Americans feel less wealthy than they once were.

1. Rising interest rates and home values ​​make it hard for baby boomers to downsize

According to financial adviser Colton Moore, who works for banking app Stash, empty nests are currently facing a confluence of problems as they attempt to move from their “forever home” to smaller properties. Sure, house values ​​may be up for the homes they currently live in, but the value of the smaller homes they want to buy is also up.

Meanwhile, mortgage interest rates are significantly higher than a year ago, making borrowing much more expensive. In fact, today’s average rate for a 30-year mortgage is 5.46% at the time of this writing, which is considerably higher than the average rate of 3% exactly one year ago. .

Moore says property values ​​have increased so dramatically that downsizing may not save money or be financially viable.

“It forces people to stay in houses that are bigger than necessary and more expensive to maintain,” he says.

2. Homeownership costs continue to rise

Moore also points out that rapidly rising home values ​​are causing properties to be assessed at higher values ​​than ever before, which directly increases property taxes and the cost of home insurance.

As a result, homeowners see their monthly housing costs increase even if they have a fixed mortgage payment or own their home. Additionally, potential homeowners trying to buy a first home are seeing higher-than-ever home-related costs built into their future mortgage payments through escrow accounts.

3. Moving for any reason is a challenge

Real estate expert G. Brian Davis of SparkRental says he’s heard many homeowners talk about feeling locked in by their current fixed-rate mortgage and their much-appreciated home. This makes sense considering that many homeowners were able to refinance their mortgages at rates below 2.5% throughout 2021, and since the rates currently offered are well over double.

“They’re worried that if they move they’ll get hit twice,” Davis says. “They will pay much higher interest on a mortgage and they will have to pay the inflated total price of their next home.”

The equity in the property they access when they sell their home will cushion that last blow, but not the first. This makes it difficult to upgrade homes or move to areas with higher living costs, he says.

While not being able to expand or downsize can be a problem in itself, Davis says it can prevent Americans from moving to areas with better job opportunities.

“This lack of mobility fuels the mismatch between employers’ needs and employees’ opportunities,” he says.

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