Homeowner Equity Remained Strong During Q3

ATTOM has released its Q3 2023 U.S. Home Equity & Underwater Report, which shows that 47.4% of mortgaged residential properties in the U.S. were considered equity-rich in Q3, meaning that the combined estimated amount of loan balances secured by those properties was no more than half of their estimated market values.

The portion of mortgaged homes that were equity-rich in Q3 of 2023 decreased from 49.2% in Q2 of 2023—the largest quarterly decline since at least 2019. The latest figure was also down from 48.5% in Q3 of 2022. Those declines happened despite home values rebounding recently from a fallback that had lasted from the middle of last year to the early part of this year.

But while equity-rich levels dropped in the third quarter, the report also shows that the portion of mortgaged homes that were seriously underwater in the U.S. continued to improve.

Just 2.5% of all residential mortgages (one in 40) were considered seriously underwater in Q3 of 2023. That meant they had a combined estimated balance of loans secured by the property of at least 25% more than the property's estimated market value. The seriously underwater level dropped from one in 36 homes in Q2 and from one in 35 in Q3 of 2022, to the lowest point in at least four years.

"By all measures, homeowner equity around the country remained strong during the third quarter as millions of households kept benefiting from the nation's extended runup in home values. At the same, though, we saw an unusual downturn at the equity-rich end of the spectrum," said Rob Barber, CEO of ATTOM. "That could have just been a temporary blip. It also could have reflected an increase in long-time owners who had lots of equity built up selling their homes, or perhaps borrowing against their rising wealth and slipping out of equity-rich territory. The fourth quarter data should say more about whether residential equity in the U.S. has indeed topped out."

The mixed equity patterns came as the U.S. housing market continued recovering from the downturn that had threatened to end the decade-long run of price and equity growth.

The median nationwide single-family home price rose 11% over the second and third quarters of this year, following an 8% drop from mid-2022 to early 2023. Values went back up as the job market remained strong, with the national unemployment rate below 4% and consumer price inflation down to less than half the level of a year earlier. A strong investment market also puts more money in the hands of potential homebuyers. An ongoing tight supply of homes put additional upward pressure on prices, along with a temporary lull in a two-year rise in home mortgage rates.

The potential for more uneven equity trends remains in place as mortgage rates rise toward 8 % for a 30-year loan and the housing market heads into its annual slow season, which usually leads to smaller price increases or even small declines.

Equity-rich share of mortgages drops in almost 30 states

The portion of mortgages that were equity-rich went down in 29 of the 50 U.S. states from Q2 of 2023 to Q3 of 2023, commonly by one to four percentage points.

The biggest declines came in the South region, led by:

1. South Carolina (the proportion of mortgaged homes considered equity-rich decreased from 50% in Q2 of 2023 to 43.7% in Q3 of 2023)
2. Florida (down from 60.4% to 54.4%)
3. Kentucky (down from 42.1% to 37.1%)
4. California (down from 63.3% to 58.5%)
5. Oklahoma (down from 36.5% to 32.5%)

Equity-rich levels rose in 21 states from Q2 to Q3 of this year, with the largest improvements concentrated in the Northeast region. The biggest increases were in South Dakota (up from 46.4% to 49.9%), Maine (up from 56% to 59.3%), Connecticut (up from 38.6% to 41.5%), New Jersey (up from 43% to 45.9%), and New Hampshire (up from 56.6% to 59.4%).

Seriously-underwater mortgage levels improve in most states

The portion of mortgaged homes considered seriously underwater dropped and remained historically low during Q3 of 2023 in 43 states. The biggest decreases were clustered in the Midwest and the Northeast, a region that has some of the nation's highest levels of seriously underwater mortgages.

The improvements were led by:

1. Indiana (share of mortgaged homes that were seriously underwater, down from 8.1% in Q2 of 2023 to 2.6% in Q3 of 2023)
2. Hawaii (down from 3.6% to 1.6%), South Dakota (down from 4% to 2.6%)
3. Missouri (down from 4.8% to 3.9%)
4. Maine (down from 2.7% to 1.9%)

States where the percentage of seriously underwater homes increased the most from the second to Q3 of this year were led by Wyoming (up from 3% to 5.9%), Mississippi (up from 5.8% to 7.4%), California (up from 1.1% to 1.6%), Idaho (up from 2.4% to 2.7%), and Louisiana (up from 10.5% to 10.8%).

Highest levels of equity-rich homeowners in the Northeast and West

The 10 states with the highest levels of equity-rich mortgaged properties around the U.S. during Q3 of 2023 were in the Northeast and West regions.

Those with the largest portions were:

1. Vermont (79.8% of mortgaged homes were equity-rich)
2. New Hampshire (59.4%)
3. Maine (59.3%)
4. Montana (59.1%)
5. California (58.5%)

Nine of the 10 states with the lowest percentages of equity-rich properties during Q3 of 2023 were in the Midwest and South. The smallest portions were in Louisiana (19.7% of mortgaged homes were equity-rich), Illinois (29.8%), Alaska (29.8%), West Virginia (30.5%), and North Dakota (30.7%).

Among the 107 metropolitan statistical areas around the nation with a population of at least 500,000, the West and South again dominated the list of places with the highest portion of mortgaged properties that were equity-rich.

All but three of the top 25 metros were in those regions during Q3 of 2023, led by:

1. San Jose, CA (75% equity-rich)
2. San Diego (66.4%)
3. Los Angeles (66.4%)
4. San Francisco, CA (64.1%)
5. Portland, ME (63.5%)

The leader in the South region again was Sarasota-Bradenton, FL (61.5%), while the top metro in the Midwest continued to be Grand Rapids, MI (54.3%).

The 10 metro areas with the lowest percentages of equity-rich properties in Q3 of 2023 were in the Midwest and South. The smallest levels were in Baton Rouge, LA (15.1% of mortgage homes were equity-rich); New Orleans (26.4%); Little Rock, AR (26.6%); Virginia Beach, VA (28.1%); and Jackson, MS (29.5%).

The portion of mortgaged homes considered equity-rich declined from Q2 of 2023 to Q3 of 2023 in 79 of the 107 metro areas with sufficient data (74%), while the portion decreased from Q3 of last year to the same period this year by 61%.

Top equity-rich counties clustered in the Midwest, Northeast, and West

Among 1,732 counties that had at least 2,500 homes with mortgages in Q3 of 2023, the top 25 equity-rich locations were in the Midwest, Northeast, and West regions.

Counties with the highest share of equity-rich properties were:

1. Chittenden County (Burlington), VT (86.8% equity-rich)
2. Addison County (Middlebury), VT (86.4%)
3. Benzie County (Beulah), MI (85%)
4. Presque Isle County (Rogers City), MI (83.4%)
5. Sawyer County (Hayward), WI (82.8%)

Counties with populations of at least 500,000 and the highest equity-rich rates were Santa Clara County (San Jose), CA (76.2% equity-rich); San Mateo County, CA (outside San Francisco) (73% equity-rich); Alameda County (Oakland), CA (69.1%); Los Angeles County, CA (67.4%); and San Diego County, CA (66.4%).

Counties with the smallest share of equity-rich homes in Q3 of 2023 were Campbell County (Gillette), WY (6.1% equity-rich); Iberville Parish, LA (outside Baton Rouge) (8.1%); Vernon Parish (Leesville), LA (8.3%); Ascension Parish, LA (outside Baton Rouge) (9.3%); and Greenup County, KY (11.8%).

Counties with populations of at least 500,000 and the smallest equity-rich portions were Baltimore City/County, MD (25.4% equity-rich); Cook County (Chicago), IL (28.4%); Prince George's County, MD (outside Washington, DC) (29.7%); Anne Arundel County (Annapolis), MD (30.9%); and Lake County, IL (outside Chicago) (31%).

The largest shares of seriously underwater mortgages remain in the Midwest and South

The Midwest and South regions had nine of the top 10 states with the highest shares of mortgages that were seriously underwater in Q3 of this year.

The top five were:

1. Louisiana (10.8% seriously underwater)
2. Mississippi (7.4%)
3. Wyoming (5.9%)
4. Kentucky (5.7%)
5. Iowa (5.2%)

The smallest shares were in Vermont (0.9% seriously underwater), New Hampshire (0.9%), Rhode Island (1%), Massachusetts (1%), and Florida (1.3%).

While most seriously underwater rates around the country changed by less than one percentage point from Q2 to Q3 of this year, the portion decreased in 82, or 77%, of the metro areas in the U.S. with enough data to analyze. Seriously underwater rates were down year-over-year in 63% of the metro areas analyzed.

More than 20% of residential mortgages are seriously underwater in just 30 zip codes

Among 9,067 U.S. zip codes that had at least 2,000 homes with mortgages in Q3 of 2023, there were only 30 locations where more than 20% of mortgaged properties were seriously underwater. Of those, 10 were in Cleveland or Philadelphia.

The top five zip codes with the largest shares of seriously underwater properties in Q3 of 2023 were 82716 in Gillette, WY (50.8% of mortgaged homes were seriously underwater); 78041 in Laredo, RX (46%); 78045 in Laredo, TX (44.3%); 39601 in Brookhaven, MS (43.1%); and 82718 in Gillette, WY (40.5%).

Most homeowners facing foreclosure still have at least some equity

Only about 258,900 homeowners nationwide were facing possible foreclosure in Q3 of 2023, or about one in every 242 mortgaged residential properties in the U.S. Of those facing foreclosure, about 238,200 (or 92%) had at least some equity built up in their homes.

"Elevated equity levels continue to benefit even those homeowners facing possible foreclosure. They're providing resources for most delinquent owners to help them refinance their mortgages or sell instead of just walking away and abandoning their properties," said Barber. "That remains a powerful force working against blight, which can lead to vacant homes."

States where the largest portion of homeowners facing possible foreclosure had equity in their properties in Q3 of 2023 included Utah (97% with equity), Massachusetts (95%), North Carolina (95%), Nevada (95%), and Maine (95%). States with the lowest percentages included Louisiana (76% with equity), Maryland (86%), Illinois (86%), Missouri (87%), and Alabama (88%).

To read the full report, including more data, charts, and methodology, click here.