Homeowners have $90K more home equity than pre-pandemic
A CoreLogic report found that average home equity rose more than 7% in 2022 — a small gain relative to the big jump seen in 2021, but still above average.
Key points:
- Home equity varied widely by state, with Florida seeing the biggest gain while Idaho, Washington state, California, Utah and Washington, D.C. posted equity losses.
- Overall equity remains strong, which could be a factor in keeping distressed property levels low during a slow economy.
- Some markets are more vulnerable to market declines, including parts of inland California, Illinois, New Jersey, and Delaware.
Even as the real estate market took a sudden turn in the second half of 2022, most U.S. homeowners built equity at a nice clip last year.
An analysis by CoreLogic found that for homeowners with a mortgage, equity increased an average of 7.3% in 2022 compared to a year ago. It pales in comparison to the whopping 29.3% jump in equity between the end of 2020 to 2021, but is still well above the historical average of around 3% a year.
Home equity changes varied widely, with some states experiencing a year-over-year decline, according to the report. Florida homeowners with a mortgage had the biggest gain in year-over-year equity, adding an average of $49,000. Idaho homeowners, on the other hand, experienced the biggest drop, with equity falling $19,000. Across the U.S., the average homeowner with a mortgage added $14,300 in equity in the past year.
Equity losses tended to be in areas that saw big price increases earlier in the pandemic, including Boise, Austin and Phoenix.
"While equity gains contracted in late 2022 due to home price declines in some regions, U.S. homeowners on average still have about $270,000 in equity, nearly $90,000 more than they had at the onset of the pandemic," said Selma Hepp, chief economist for CoreLogic. "Even in Idaho, where borrowers were the most vulnerable to losses, the typical homeowner with a mortgage still has about $250,000 in remaining home equity."
Negative equity — where a homeowner's mortgage is more than the value of the house — remains at low levels. CoreLogic estimated that negative equity was at 2.1% at the end of 2022, which is down slightly compared to the end of 2021, when it was at 2.2%. During the Great Recession, negative equity peaked at 26% during the third quarter of 2009.
A high level of positive home equity is important during a real estate slowdown because it acts as a hedge against foreclosures. If the labor market slows as the Federal Reserve tries to tame inflation, resulting in job losses, high home equity and locked-in low interest rates could keep many homes from becoming distressed properties.
Even so, there are vulnerabilities. Housing markets in inland California, Illinois and the Mid-Atlantic are the most vulnerable if the slowdown worsens, according to a recent report by ATTOM, which analyzes foreclosure and distressed property data.
The South, Midwest and western areas outside of California are considered the least vulnerable during housing market declines. Along with equity, ATTOM took into account other factors including the labor market, foreclosures and underwater mortgages.
"It remains important to note that we are not identifying markets headed for an imminent fall, just those that look to be more exposed to market troubles," said Rob Barber, chief executive officer at ATTOM.