According to a housing economist, homeowners who have benefited from the surging property values are at the heart of the record-breaking home prices seen in the market today. Profits gained from selling their homes are being used to finance their next purchases, causing a continuous rise in property prices. The latest data from the CoreLogic S&P Case-Shiller Index reveals that home prices have increased by 6.3 percent on a yearly basis, marking the sector's 10th consecutive monthly price gain.

While there are signs that the pace of price increases may be slowing down, CoreLogic's chief economist, Selma Hepp, predicts that the market will experience "robust" prices this year. Despite higher mortgage rates and rising homeownership costs, Hepp explains that existing homeowners in high-growth markets have been able to leverage their accumulated home equity and generate larger down payments or purchase properties with all cash.

However, while this trend may benefit homeowners, it has made it increasingly challenging for prospective buyers to enter the housing market. High prices and elevated borrowing costs are creating an affordability gap for first-time buyers. Hepp emphasizes that declining mortgage rates or an increase in wages would be necessary to help bridge this gap.

The rise in home prices has resulted in American homeowners witnessing a surge in the value of their properties. In the first quarter of this year alone, the equity of homes grew by nearly 10 percent compared to 2023, contributing a total of $1.5 trillion in added value, according to a CoreLogic analysis. Additionally, the equity of homeowners is rapidly approaching the historic peak of 2023, with an average of close to $305,000 per owner. Furthermore, higher prices have lifted approximately 190,000 homeowners out of negative equity.

The accumulation of equity is not only boosting sellers' ability to acquire new homes but also driving the overall housing market. Hepp highlights that increased prices are helping current homeowners build equity, which can then be utilized to purchase another property. Among the markets with the highest accumulated equity among borrowers are San Francisco, Boston, and Seattle – metropolitan areas known for their higher incomes.

As the trend of expensive homes in the market continues, buyers are facing significant challenges due to high prices and borrowing costs. Meanwhile, the profits and increased equity of homeowners are fueling the surge in prices. Unless mortgage rates decline or wages increase, many potential homebuyers may find it increasingly difficult to make their way into the housing market.