Softening of home equity follows a dip in resale profits
The share of mortgaged homes classified as equity-rich declined for the second consecutive quarter as the prolonged housing market boom cooled in Q4 2023, according to ATTOM’s latest home equity report.
While the portion of equity-rich mortgaged homes (those with loans no more than half their property’s value) saw a modest decline to 46.1% from 47.4% in the previous quarter, the percentage of homes considered seriously underwater (where loan balances exceed property values by 25% or more) marginally increased from 2.5% to 2.6%.
While not alarming, the dip in home equity, alongside a slight rise in underwater mortgages, indicates that the booming housing market may be showing signs of easing.
“It’s not as if there are big warning signs flashing. Similar things were happening early last year before the market surged in the spring. But the softening of equity follows a dip in resale profits last year for the first time in more than a decade as prices have stopped soaring through the roof,” said ATTOM chief executive Rob Barber. “This year’s peak buying season will tell us a lot about whether things really have settled down long-term.”
The report also captured the weakest annual median home price growth since 2012, at just 2%, indicating a market cooling amid a complex interplay of rising mortgage rates, a tight supply of homes, strong employment, and a buoyant investment market.
“The potential for more uneven equity trends remains in place as the housing market heads into its annual peak spring and summer buying season but faces elevated prices that remain a financial stretch for wide swaths of the potential buying public,” ATTOM wrote in its report.
Regionally, equity-rich mortgages declined in 41 states, particularly in the Midwest and West, with Missouri, Minnesota, Michigan, Washington, and Utah leading the downturns. Meanwhile, states like Vermont, West Virginia, Wyoming, New Jersey, and Connecticut witnessed upticks in equity-rich properties, predominantly in the Northeast.
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On the other end of the spectrum, the number of seriously underwater mortgages increased in 42 states, with notable rises in the Midwest and South, regions already grappling with higher levels of such distressed properties. However, states like Idaho, California, West Virginia, Texas, and Vermont saw decreases in seriously underwater homes.
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