How to profit from soaring house prices

The housing market was a strong favor for sellers in 2021. Limited inventories and low mortgage rates fueled increased demand from buyers which pushed up home prices.

In November, the Federal Housing Finance Agency reported that US house prices rose 18.5% in the third quarter of the year compared to the same period in 2020. Not surprisingly, this has left many homeowners with very high levels of equity.

In fact, at the end of the third quarter of 2021, U.S. homeowners had $ 9.4 trillion in collective available capital, according to Black Knight. This works out to an average of $ 178,000 per owner.

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So how can you, as a homeowner, take advantage of extraordinarily high home prices? Here are a few options to consider.

1. Reduce the size

When house prices are high, selling higher and increasing the workforce is a strategy that doesn’t always work. What you earn financially from the sale of your home you will lose by paying a small fortune for the next one. But if you sell your house and downsize it, that’s a whole different story.

Typically, you will pay less for a smaller house than a larger house in the same geographic neighborhood. And so, if you’re willing to offload a few square feet, you have a great opportunity to sell your home and potentially buy another without having to take out a mortgage. You may even make enough profit from this sale to build a nice little investment portfolio of stocks, bonds, and real estate investment trusts (REITs).

2. Make a cash-out refinancing

You don’t have to sell your home to profit from the fact that it’s worth so much more. Instead, you can refinance with cash.

Refinancing with withdrawal differs from traditional refinancing in that you borrow more than your mortgage balance. The excess cash you get in this transaction can be used for any purpose, whether it’s to renovate, pay off existing debt, or invest.

Right now, refinancing rates are near their historic lows, so now is a great time to swap your existing mortgage for a new one. This especially applies to borrowers with strong credit.

3. Get a Home Equity Loan or HELOC

You may be looking to make renovations or repairs that could further increase the value of your property. With home prices – and home equity levels – being so high, now is a good time to borrow against your property through a home equity loan or home equity line of credit (HELOC).

A home equity loan is a good bet when you are sure how much you want to borrow. HELOCs offer more flexibility – you can apply for a larger line of credit than you think you need and only withdraw the amount you want to borrow – but they also come with variable interest rates which can make them larger. difficult to repay. Either way, a home equity loan or HELOC may be your most affordable way to borrow against your equity if you’re not looking to go through the refinancing process.

Benefit from higher real estate prices

The home price levels we see today will not last forever. Once new inventory hits the real estate market, we could see house prices steadily falling. As such, now is the time to take advantage of higher property values, whether it’s downsizing and making a profit, refinancing with cash, or borrowing on your home.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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