US home equity hits unprecedented levels

CoreLogic expects home equity wealth to boost economic activity in the coming year

US home equity hits unprecedented levels

US homeowners with mortgages gained a collective $2.9 trillion in equity in the second quarter, according to a new CoreLogic report released Thursday.

That means that each homeowner saw an average gain of $51,500, or 29.3% year over year, CoreLogic said. Mortgage borrowers account for roughly 63% of all properties. Despite the effects of the pandemic, 59% of them feel extremely confident in their ability to keep current on their payments in the coming year.

“The growth in homeowner equity provides a strong financial cushion for tens of millions of Americans. For those most impacted by the pandemic, equity gains will help play a critical role in staving off foreclosure,” said Frank Martell, president and CEO of CoreLogic. “Based on projected increases in economic activity and home values over the next year, we expect to see further gains in equity and a corresponding drop in negative equity, forbearance rates and foreclosure.”

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“Home equity wealth is at a record level and will bolster economic activity in the coming year,” said CoreLogic chief economist Frank Nothaft. “Higher wealth spurs additional consumer expenditures and also supports room additions and other investments in homes, adding to overall economic activity.”

Meanwhile, the total number of mortgaged homes in negative equity or underwater mortgages fell 12% to 1.2 million homes quarter over quarter (2.3% of all mortgaged properties). Year over year, negative equity share was down by 30%, or 520,000 properties in the second quarter.

The national aggregate value of negative equity was about $268 billion at the end of Q2, down by $5.2 billion (1.9%) in Q1 and approximately $18.9 billion (6.6%) lower than in Q2 2020.

“Because home equity is affected by home price changes, borrowers with equity positions near (+/- 5%) the negative equity cut-off are most likely to move out of or into negative equity as prices change, respectively,” CoreLogic said. “Looking at the second quarter of 2021 book of mortgages, if home prices increase by 5%, 160,000 homes would regain equity; if home prices decline by 5%, 211,000 would fall underwater.”