What is Home Equity
Crisis brings home equity to its highest level in at least 10 years
By now, most people know that the boom in the real estate market was a ray of hope in the pandemic economy. But did you know that rising property values mean that the average homeowner's equity has increased by more than $ 17,000 in the past year - more than at any point in at least 10 years?
The average homeowner with a mortgage saw their equity grow to $ 194,145 in the third quarter, up $ 17,011 from the third quarter of 2019, and the best for any period since real estate data company CoreLogic began tracking it in 2010, the company said in its quarterly analysis this week. Thanks to the COVID-19 pandemic, homeowners haven't seen such a big jump year over year since the first quarter of 2014, as the data shows.
The value of housing has risen significantly during the pandemic thanks to low mortgage rates, work-from-home trends and aLack of real estate for sale. The increase in home equity - the value of a home minus the amount of debt owed on it - should allow borrowers who have defaulted to sell their homes instead of losing them to foreclosure, according to CoreLogic economist Molly Boesel.
"The real estate market has largely held up, and this large amount of home equity that homeowners hold is really going to deter borrowers from the foreclosure crisis we saw in the last recession," Boesel said, theorising that bad memories of the real estate crisis are many Homeowners could have prevented their equity from suffering too much from the current downturn.
"I think there's a bit of what we call a hangover from the last recession," she said.
The increase in equity has helped reduce the number of "underwater" homeowners who owe more than their homes are worth. The proportion of loans with negative equity fell in the third quarter from 3.7% in the previous year to just 3%. It's the lowest level CoreLogic has recorded, and well below the fourth quarter of 2009 when 26% of all loans were underwater.
Real estate ownership is an important form of wealth for the middle class: the least rich 90% of Americans only They own about 31% of national wealth, but they own about 55% of all real estate, Federal Reserve data shows. American homeowners on mortgages gained $ 1.02 trillion in equity last year, up 10.8% to $ 10.5 trillion.
Some stock gains are likely to continue over the next several months as demand continues to drive prices higher, CoreLogic said. However, the rise in prices is likely to slow over the next year as new homes are built and more existing homes come for sale, the company said.
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