Crisis Pushes Home Equity to Highest in At Least 10 Yrs

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10'000 Hours

By now most people know the boom in the housing market has been a bright spot in the pandemic economy. But did you know that rising property values means the average homeowner’s equity has increased by more than $17,000 over the past year—to more than at any point in at least 10 years? 

The average homeowner with a mortgage saw their home equity rise to $194,145 in the third quarter, $17,011 higher than in the third quarter of 2019, and the most for any period since real estate data firm CoreLogic began keeping track in 2010, the firm said in its quarterly analysis this week. Thanks to the COVID-19 pandemic, homeowners haven’t seen such a big year-over-year jump since the first quarter of 2014, the data shows.

The value of housing has grown significantly during the pandemic, thanks to record low mortgage rates, work-from-home trends, and a scarce supply of homes for sale. The increase in home equity—the value of a home minus the amount of any debts owed on it—should enable borrowers who fall behind on payments to sell their homes instead of losing them to foreclosure, according to CoreLogic economist Molly Boesel. 

“The housing market has been largely holding up, and this large amount of home equity that homeowners are holding will really insulate borrowers from the foreclosure crisis that we saw in the last recession,” Boesel said, theorizing that bad memories of the housing crisis may have prevented many homeowners from drawing their equity down too much in the current downturn.

“I think there’s a bit of what we call ‘hangover’ from the last recession,” she said.

The increase in equity has helped to reduce the number of “underwater” homeowners who owe more than their homes are worth. The share of loans with negative equity fell to just 3% in the third quarter from 3.7% a year earlier. It’s the lowest level CoreLogic has logged, and far 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 own about 31% of the nation’s wealth, but they own about 55% of all real estate, data from the Federal Reserve shows. Overall, U.S. homeowners with mortgages gained $1.02 trillion in equity over the last year, a 10.8% increase to $10.5 trillion, according to CoreLogic’s data.

Some equity gains will likely continue over the next several months as demand continues to push prices up, CoreLogic said. However, the rise in prices will probably slow over the next year as new homes are built and more existing homes are put up for sale, the firm said.