CoreLogic: US Home Equity Gains Rose Annually in Q3 but Fell Sharply From Q2

CoreLogic® recently released the Homeowner Equity Report (HER) for the third quarter of 2022. The report shows that U.S. homeowners with mortgages (which account for roughly 63% of all properties) saw equity increase by 15.8% year over year, representing a collective gain of $2.2 trillion, for an average of $34,300 per borrower, since the third quarter of 2021.

Nationwide, annual home equity gains began to slow in the third quarter of 2022, with the average borrower netting $34,300, compared with the nearly $60,000 year-over-year gain recorded in the second quarter. Slowing prices also caused an additional 43,000 properties to fall underwater.

The quarter-over-quarter decline in equity is partially due to cooling home price growth across the country, as annual appreciation fell from about 18% in June to just slightly more than 10% in October. As home price gains are projected to relax into single digits for the rest of 2022, then possibly move into negative territory by the spring of 2023, equity increases will likely decline accordingly in some parts of the country.

“At 43.6%, the average U.S. loan-to-value (LTV) ratio is only slightly higher than in the past two quarters and still significantly lower than the 71.3% LTV seen moving into the Great Recession in the first quarter of 2010,” said Selma Hepp, interim lead of the Office of the Chief Economist at CoreLogic. “Therefore, today’s homeowners are in a much better position to weather the current housing slowdown and a potential recession than they were 12 years ago.”

“Weakening housing demand and the resulting decline in home prices since the spring’s peak reduced annual home equity gains and pushed an additional number of properties underwater in the third quarter,” said Hepp. “Nevertheless, while these negative impacts are concentrated in Western states such as California, homeowners with a mortgage there still average more than $580,000 in home equity.”

Negative equity, also referred to as underwater or upside-down mortgages, applies to borrowers who owe more on their mortgages than their homes are currently worth. As of the third quarter of 2022, the quarterly and annual changes in negative equity were:

• Quarterly change: From the second quarter of 2022 to the third quarter of 2022, the total number of mortgaged homes in negative equity increased by 4% to 1.1 million homes or 1.9% of all mortgaged properties.
• Annual change: In the third quarter of 2021, 1.2 million homes, or 2.2% of all mortgaged properties, were in negative equity. This number declined by 9.8% in the third quarter of 2022, to 1.1 million homes or 1.9% of all mortgage properties.

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, respectively. Looking at the third quarter of 2022 book of mortgages, if home prices increase by 5%, 127,000 homes would regain equity; if home prices decline by 5%, 172,000 properties would fall underwater.

Methodology

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 2019 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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