As the pandemic created economic uncertainty for many, the continued acceleration in home prices over the last year has meant existing homeowners saw a notable boost in home equity. According to CoreLogic’s Q1 Homeowner Equity Report, U.S. homeowners with mortgages (which account for roughly 62% of all properties) have seen their equity increase by 19.6% year-over-year, representing a collective equity gain of over $1.9 trillion, and an average gain of $33,400 per borrower, since Q1 of 2020.
Unlike the financial crisis, a time when many borrowers were underwater on their mortgages, borrowers who are currently delinquent on their mortgage payments can tap into their equity and sell their home rather than lose it through foreclosure. These conditions are reflected in a recent CoreLogic survey, with 74% of current homeowners with mortgages noting they are not concerned with owing more on their home than it is worth within the next five years.
“Homeowner equity has more than doubled over the past decade, and has become a crucial buffer for many weathering the challenges of the pandemic,” said Frank Martell, President and CEO of CoreLogic. “These gains have become an important financial tool and boosted consumer confidence in the U.S. housing market, especially for older homeowners and baby boomers who've experienced years of price appreciation."
From Q4 of 2020 to Q1 of 2021, the total number of mortgaged homes in negative equity decreased by 7% to 1.4 million homes, or 2.6% of all mortgaged properties. In Q1 of 2020, 1.8 million homes, or 3.4% of all mortgaged properties, were in negative equity. This number decreased by 24%, or 450,000 properties, in Q1 of 2021. The national aggregate value of negative equity was approximately $273 billion at the end of Q1 of 2021. This is down quarter-over-quarter by approximately $8.1 billion, or 2.9%, from $281.1 billion Q4 of 2020, and down year over year by approximately $13.3 billion, or 4.6%, from $286.3 billion in the first quarter of 2020.
“Double-digit home price growth in the past year has bolstered home equity to a record amount. The national CoreLogic Home Price Index recorded an 11.4% rise in the year through March 2021, leading to a $216,000 increase in the average amount of equity held by homeowners with a mortgage,” said Dr. Frank Nothaft, Chief Economist for CoreLogic. “This reduces the likelihood of large numbers of distressed sales from homeowners who emerge from forbearance later in the year.”
Because home equity is affected by home price changes, borrowers with equity positions near (+/- 5%) the negative equity cutoff are most likely to move out of or into negative equity as prices change, respectively. Looking at the Q1 of 2021 book of mortgages, if home prices increase by 5%, 195,000 homes would regain equity; if home prices decline by 5%, 260,000 of them would fall underwater.
The top ten states with the higher share of underwater homes in Q1 includes:
- North Dakota
- New York
Click here to view the full Q1 Homeowner Equity Report from CoreLogic.