Home Equity Soars: A 9.6% Year-Over-Year Increase Boosts Homeowner Wealth

A topic that has created a lot of buzz among real estate data analysts recently is the remarkable increase in home equity across the United States.

According to a recent report by CoreLogic, U.S. homeowners with mortgages experienced a substantial increase in home equity, averaging a 9.6% year-over-year gain. This increase translates to a collective gain of $1.5 trillion and an average rise of $28,000 per borrower.

The surge in home prices has pushed home equity to near historic peaks, with the average homeowner's equity approaching $305,000.

The Impact of Rising Home Prices

The steady rise in home prices is feeding this phenomenon, lifting approximately 190,000 homeowners out of negative equity. This significant improvement means that only about 1.8% of homeowners with mortgages are currently underwater.

Selma Hepp, CoreLogic's Chief Economist, emphasizes that home equity is crucial for mortgage holders facing increasing homeownership costs, such as insurance, taxes, and HOA fees. Home equity serves as a financial buffer, providing homeowners with a safety net during economic fluctuations.

Geographic Disparities in Equity Gains

While the national average increase in home equity is impressive, it's important to note that not all regions have experienced the same level of growth.

Homeowners in California saw the largest gains, with an average increase of $64,000. The Los Angeles metro area topped this figure, with homeowners enjoying a remarkable $72,000 increase in equity year-over-year.

Other states with significant equity gains include Massachusetts, New Jersey, Washington, Maine, New Hampshire, and Rhode Island, where homeowners saw increases of $40,000 or more.

Decline in Negative Equity

The report also highlights a decrease in the number of mortgaged residential properties with negative equity. The total number of homes with negative equity fell by 2.1% from the previous quarter, representing 1.8% of all mortgage properties, or roughly 1 million homes.

On a year-over-year basis, negative equity declined by 16.1%, from 1.2 million homes, or 2.1% of all mortgage properties in Q1 2023.

Implications for Homeowners and the Market

The national aggregate value of negative equity was $321 billion at the end of the first quarter, down by about $2.8 billion from the fourth quarter and $17.6 billion from the first quarter of 2023.

This decline in negative equity is a positive sign for the housing market, as it indicates that more homeowners are building wealth through their properties.

Looking to the Future

The Federal Housing Finance Agency (FHFA) recently announced its conditional approval for Freddie Mac to participate in a pilot to purchase single-family closed-end second mortgages. Although the pilot has very specific guidelines, it opens the door for home equity lenders to sell a portion of their second lien portfolio to the GSE.

The trajectory of home equity gains will largely depend on the direction of home prices. According to researchers, if home prices increase by another 5%, it could lift 111,000 underwater homeowners out of negative equity. Conversely, a 5% decrease in home prices could push 153,000 homeowners back into negative equity.

The significant increase in home equity in the U.S. underscores the importance of homeownership as a wealth-building tool. For mortgage professionals, understanding these trends is vital for advising clients and making informed business decisions.

As home prices continue to rise, the potential for further equity gains remains strong, providing homeowners with opportunities to enhance their financial stability and invest in their future.

New Vista Solutions is a leading provider of mortgage settlement services for the residential and commercial real estate markets, specializing in products designed to save home equity lenders time and money. We have recently launched a new instant prequal title report that immediately identifies clear title, shortening the time to close.

By keeping abreast of home equity market trends, we are able to better serve our clients and help them navigate the complexities of the real estate market, ultimately contributing to their long-term success.

For more information, call 866-721-9295, or contact us at info@newvistasolutions.com.