Homeowner equity down but is still riding high

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Real Estate

 

Key points:

  • A CoreLogic report found that home equity among people with mortgages decreased 0.7% year over year, representing an average loss of $5,400.
  • Still, nearly half of those homeowners are considered equity-rich, and negative equity and foreclosures remain low.
  • Western states posted some of the largest annual home equity losses, with Washington state leading the way.

For the first time in more than a decade, U.S. homeowners with a mortgage have lost a small amount of equity.

The latest CoreLogic report found that in the first quarter of 2023, home equity decreased 0.7% year over year, representing an average loss of $5,400 per borrower.

States in the West posted the largest annual home equity losses as home prices in some Western metros fell significantly over the past year. Washington state topped the list with an average equity loss of $74,300 per borrower, followed by California (down $59,600) and Utah (down $37,700).

Despite the drop, homeowners with a mortgage still have substantially more equity than they did prior to the pandemic.

"The average U.S. homeowner now has more than $274,000 in equity — up significantly from $182,000 before the pandemic," said CoreLogic Chief Economist Selma Hepp. "Also, while homeowners in some areas of the country who bought a property last spring have no equity as a result of price losses, forecasted home price appreciation over the next year should help many borrowers regain some of that lost equity."

A study released in May by ATTOM paints a similar picture. According to the report, 47.2% of mortgage residential properties in the U.S. were considered equity-rich in the first quarter, meaning that the loan balance was less than half of their estimated market values. That's down only slightly from 48% in the fourth quarter of 2022.

"Homeowners across the U.S. continue to sit in a far better position than they were just a few years ago, with historically elevated levels of wealth built up in their properties. However, the recent downturn in the housing market is chipping away at the bounty they reaped from a decade of price surges," said ATTOM CEO Rob Barber. "It's still too early to call this a long-term trend, and there are reasons to hope for a market turnaround this year. For now, though, various measures suggest that the best of the boom may be behind us."

Relatively few homes are underwater or at risk of foreclosure

While ticking up year-over-year, negative equity remains low during this slow market. About 1.2 million homes, or 2.1% of all mortgaged properties, were in a negative equity situation in the first quarter. That's unchanged from the fourth quarter of 2022 and nearly flat from a year ago when it was at 2%.

To put that number in perspective, negative equity was above 30% at various times during the Great Recession around 2009 and didn't fall below 10% until 2017, according to Zillow.

The ATTOM report also noted that foreclosures remain low. Only 238,000, or about 0.4%, of the 58 million outstanding mortgages were facing possible foreclosure. And of those homes at risk of foreclosure, 92% had at least some equity built up.