The stunning jump in home values over the course of the Covid-19 pandemic has given U.S. homeowners record amounts of housing wealth. What they choose to do with it could have impacts on the broader economy. 

Annual home price gains averaged 15% in 2021, up from 6% in 2020, according to CoreLogic. Strong pandemic-driven demand, record low supply and record low mortgage rates conspired to create those hefty gains. Bidding wars are now the norm, and desperate buyers are competing with investors who want to cash in on the hot market. The upward trend is continuing, despite winter being historically the slowest season for housing.

“While we expect this year’s buyers will eventually see some relief from the 2021 frenzy, home shoppers continue to face challenging conditions in the early days of 2022,” said Danielle Hale, chief economist for Realtor.com. “In fact, last week’s home price and time on market trends suggest competition intensified.”

While there were relatively few home sellers in 2021, for those who did list their homes, the returns were well worth it. The profit on a typical home sale last year was just over $94,000 according to ATTOM, a national property database. That is up 45% from the profit in 2020 and up 71% from pre-pandemic profits. And the vast majority of local housing markets participated in that growth. 

“Households that escaped job losses from the pandemic dove into the market, in large part as a response to the crisis,” said Todd Teta, chief product officer at ATTOM. “No doubt, there are warning signs that the surge could slow down this year. But 2021 will go down as one of the greatest years for sellers and one of the toughest for buyers.” 

It was the highest profit level since 2008, which was the last housing boom and that boom was built on faulty mortgages and homeowners with little to no equity. That is not the case now. 

Even homeowners who weren’t listing their properties for sale were gaining equity. About 42% of homeowners were considered equity-rich at the end of last year, meaning their mortgages were half or less than half the value of their home. That wealth is far higher than the 30% share of equity-rich homeowners at the end of 2020. Nine of the top ten equity-rich states were in the West, including Idaho, Utah, Washington and Arizona.

The states with the least housing wealth were mainly in the Midwest and South, such as Illinois, Louisiana and Mississippi.

The amount of tappable equity (equity above the 20% usually required by lenders to back a mortgage) grew by $2.6 trillion last year to a record total of $9.9 trillion, according to an exclusive advance look at Black Knight’s Mortgage Monitor. That is a 35% jump in a single year. The average homeowner now has $185,000 in tappable equity.

So what does that mean for the overall economy? A lot of potential spending power, should consumers decide to use all that wealth. The personal savings rate shot up during the pandemic, according to the U.S. Bureau of Economic Analysis and is only now starting to come back to pre-pandemic levels.

With inflation at a 40-year high, that added spending power could continue to drive demand, and prices, higher.

The only thing that might stand in the way of homeowners tapping all that wealth, outside of selling their homes, is rising mortgage rates. They would not want to do a cash-out refinance because they’d likely have to pay a higher rate. A home equity line of credit is a possibility, but interest rates on those are rising as well.