Analyzing the Impact of Home Equity Shifts on U.S. Homeowners
In the ever-evolving realm of U.S. homeownership, a recent report from CoreLogic has shed light on the fluctuations in homeowner equity over the past year. As of the second quarter of 2023, the landscape of homeowner equity has experienced both gains and losses, prompting a deeper dive into the numbers and the factors driving these changes.
According to CoreLogic’s latest Homeowner Equity Report for the second quarter of 2023, U.S. homeowners with mortgages, constituting approximately 63% of all residential properties, have witnessed a concerning trend. Over the past year, home equity has seen a decrease of 1.7%, resulting in a collective loss of a staggering $287.6 billion. On an individual level, this translates to an average loss of $8,300 per borrower since the second quarter of 2022.
However, it’s not all doom and gloom for homeowners. In a more encouraging turn of events, U.S. homeowners with mortgages experienced an average gain of $13,900 in home equity quarter over quarter. This boost in equity amounts to a collective increase of $806 billion, marking a 5.2% gain. These fluctuations beg the question: What’s behind this seesawing of homeowner equity?
Regional Disparities and Equity Resilience
Regional disparities play a significant role in understanding these equity dynamics. Borrowers in the Western United States have borne the brunt of year-over-year equity losses, as indicated in Figure 1. However, in states such as Hawaii, California, and Washington, homeowners continue to enjoy substantial accumulated equity, thanks to a decade of rapid appreciation in property values.
Selma Hepp, the chief economist for CoreLogic, provides some insight into this intricate landscape. She states, “While U.S. home equity is now lower than its peak in the second quarter of 2022, owners are in a better position than they were six months ago, when prices bottomed out.” Hepp emphasizes that the 5% overall increase in home prices since February has translated into nearly $14,000 in gains for the average U.S. homeowner compared to the previous quarter. This represents a significant improvement for borrowers who purchased their homes during the peak of prices in the spring of 2022.
Furthermore, Hepp notes that the distribution of homeowners with negative equity is not necessarily tied to markets that have seen the most substantial price declines. Factors such as down payments and the impact of natural disasters also contribute significantly to changes in home equity.
Negative equity, also known as underwater or upside-down mortgages, affects borrowers who owe more on their mortgages than their homes are currently worth. The report highlights the following quarterly and annual changes in negative equity:
Quarterly Change: From the first quarter of 2023 to the second quarter of 2023, the total number of mortgaged homes in negative equity decreased by 6%, now accounting for 1.11 million homes or 2% of all mortgaged properties.
Annual Change: Comparing the second quarter of 2022 to the second quarter of 2023, the total number of homes in negative equity increased by 4%, representing 1.06 million homes or 1.9% of all mortgaged properties.
This data underscores the sensitivity of home equity to changes in home prices. Borrowers with equity positions hovering near the +/- 5% threshold are most likely to transition in and out of negative equity as property values fluctuate. In the second quarter of 2023, for instance, a 5% increase in home prices would result in 128,000 homes regaining equity, while a 5% decline would plunge 178,000 properties underwater.
In conclusion, the homeowner equity landscape in the United States is in a constant state of flux, influenced by regional disparities, market dynamics, and economic factors. As we continue to navigate these changes, homeowners and industry professionals alike must remain vigilant and adapt to this evolving terrain.
