- The number of mortgages in negative equity fell by 18.3% year over year in Q3 2020
- Average equity gain of $17,000 per homeowner in Q3 2020 was the highest in over six years
CoreLogic® (NYSE: CLGX), a leading global property information, analytics and data-enabled solutions provider, today released the Home Equity Report for the third quarter of 2020. The report shows U.S. homeowners with mortgages (which account for roughly 63% of all properties) have seen equity increase by 10.8% year over year, representing a collective equity gain of $1 trillion, and an average gain of $17,000 per homeowner, since the third quarter of 2019. This marks the largest average equity gain since the first quarter of 2014.
Despite the economic impact of the pandemic, home prices soared throughout the summer and fall. Appreciation reached its highest level since 2014 in the third quarter of 2020 as prospective homebuyers continued to compete for the low supply of homes on the market, pushing home equity to record levels. Equity gains are likely to persist over the next several months as strong home-purchase demand is expected to remain high and continue pushing prices up. However, the CoreLogic HPI Forecast shows home prices slowing over the next 12 months as new home construction and more existing for-sale homes ease supply pressures. This could moderate the pace of both home price growth and equity gains.
“Over the past year, strong home price growth has created a record level of home equity for homeowners,” said Dr. Frank Nothaft, chief economist for CoreLogic. “The average family with a home mortgage loan had $194,000 in home equity in the third quarter. This provides an important buffer to protect families if they experience financial difficulties, and is one reason for the generational-low in foreclosure rates reported in September.”
“The housing market has remained a strong pillar in an otherwise tumultuous economic year,” said Frank Martell, president and CEO of CoreLogic. “A sharp rise in demand, spurred by record-low interest rates, continues to bolster homeowner equity. And with many people now spending more time than ever before at home, some homeowners have tapped into their strengthening equity to fund renovations.”
Negative equity, also referred to as underwater or upside down, applies to borrowers who owe more on their mortgages than their homes are currently worth. As of the third quarter of 2020, negative equity share, and the quarter-over-quarter and year-over-year changes, were as follows:
- Quarterly change: From the second quarter of 2020 to the third quarter of 2020, the total number of mortgaged homes in negative equity decreased by 6.9% to 1.6 million homes or 3% of all mortgaged properties.
- Annual change: In the third quarter of 2019, 2 million homes, or 3.7% of all mortgaged properties, were in negative equity. This number decreased by 18.3%, or 370,000 properties, in the third quarter of 2020 to 1.6 million mortgaged properties in negative equity.
- National aggregate value: The national aggregate value of negative equity was approximately $283.3 billion at the end of the third quarter of 2020. This is down quarter over quarter by approximately $2.2 billion, or 0.8%, from $285.5 billion in the second quarter of 2020, and down year over year by approximately $21.4 billion, or 7%, from $304.7 billion in the third quarter of 2019.
Because home equity is affected by home price changes, borrowers with equity positions near (+/-5%) the negative equity cutoff are most likely to move out of or into negative equity as prices change. Looking at the third quarter of 2020 book of mortgages, if home prices increase by 5%, 247,000 homes would regain equity; if home prices decline by 5%, 337,000 would fall underwater.
While national figures continue to reflect a resilient housing market, equity gains varied broadly at the local level. States with strong home price growth and high home prices continued to experience the largest gains in equity. This includes Washington, where homeowners gained an average of $35,800; California, where homeowners gained an average of $33,800 and Massachusetts, where homeowners gained an average of $31,200. Meanwhile, North Dakota, which was hit hard by the pandemic, experienced the lowest annual equity gain (averaging just $5,400) in the third quarter of 2020.
The next CoreLogic Homeowner Equity Report will be released in March 2021, featuring data for Q4 2020. For ongoing housing trends and data, visit the CoreLogic Insights Blog: stage.corelogic.com/insights-index.aspx.
The amount of equity for each property is determined by comparing the estimated current value of the property against the mortgage debt outstanding (MDO). If the MDO is greater than the estimated value, then the property is determined to be in a negative equity position. If the estimated value is greater than the MDO, then the property is determined to be in a positive equity position. The data is first generated at the property level and aggregated to higher levels of geography. CoreLogic uses public record data as the source of the MDO, which includes more than 50 million first- and second-mortgage liens, and is adjusted for amortization and home equity utilization in order to capture the true level of MDO for each property. Only data for mortgaged residential properties that have a current estimated value are included. There are several states or jurisdictions where the public record, current value or mortgage data coverage is thin and have been excluded from the analysis. These instances account for fewer than 5% of the total U.S. population. The percentage of homeowners with a mortgage is from the 2018 American Community Survey. Data for the previous quarter was revised. Revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results.
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