The average U.S. mortgage borrower lost $5,400 in home equity year-over-year in the first quarter of 2023, according to the latest Homeowner Equity Report (HER) by CoreLogic. That was the first time home equity decreased annually since 2012.
Homeowners with home loans, which represented 63% of all properties, saw home equity decrease by 0.7% year-over-year, CoreLogic reported. That accounts for a collective loss of $108.4 billion.
Western states experienced the most significant year-over-year home equity losses, driven by recent regional price changes, CoreLogic said.
Here are the Western states that posted the deepest combined home equity losses, CoreLogic reported.
- Washington (-$74,300)
- California (-$59,600)
- Utah (-$37,700)
“The equity losses in those states reflect decelerating home prices, with all three posting annual declines in February and March,” CoreLogic said in its report.
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Home equity remains strong overall
Although the average American saw a year-over year loss in home equity, the figures have remained sturdy in recent months, CoreLogic reported.
“Home equity trends closely follow home price changes,” Selma Hepp, CoreLogic’s chief economist said in a statement. “As a result, while the average amount of equity declined from a year ago, it increased from the fourth quarter of 2022, as monthly home prices growth accelerated in early 2023.”
In fact, some states saw home equity increase on average year-over-year in Q1. Here are the states that posted the largest average gains, CoreLogic reported:
- Florida: $25,000
- Hawaii: $25,000
- Rhode Island: $24,000
- Maine: $23,000
- New Jersey: $22,000
“The average U.S. homeowner now has more than $274,000 in equity — up significantly from $182,000 before the pandemic,” Hepp said. “Also, while homeowners in some areas of the country who bought a property last spring have no equity as a result of price losses, forecasted home price appreciation over the next year should help many borrowers regain some of that lost equity.”
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What is home equity?
Home equity is the market value of a home minus what is owed on the mortgage. Home equity can grow as homeowners pay down their mortgages and if their home appreciates in value.
Homeowners can tap into their home equity by taking out home equity loans and home equity lines of credit (HELOCs) to pay off various expenses like high-interest debt.
Here’s a breakdown of how these options work.
Home equity loan: This is a loan provided by financial institutions such as banks and other mortgage lenders. The loan amount is based on the amount of home equity a person has amassed. Similarly to personal loans, a home equity loan can come with a fixed rate and be paid off in monthly payments.
HELOC: This is a line of credit that homeowners may borrow against their home equity. It’s also offered by various institutions like banks. HELOCs work similarly to credit cards. The more a homeowner pays off a HELOC, the more of the line of credit that may be used.
Both options have grown in popularity, one industry report showed. In fact, the number of HELOC originations increased to 298,694 in Q1 2023 from 278,230 in Q1 2022, according to the latest TransUnion data. Plus, the number of home equity loan originations increased to 263,728 from 201,381 in the same time frame.
“The increases observed in HELOC and home equity loan originations, indicates that homeowners are still interested in tapping their home equity, even at higher interest rates,” Joe Mellman, senior vice president and mortgage business leader at TransUnion, said in a statement. “It is also encouraging that purchase originations remain near the lower end of the normal activity range, indicating that consumers are continuing to purchase homes even in this higher-rate environment.
“While delinquency levels remain below historical norms, this marks the fourth consecutive quarter of increase– a trend worthy of continued monitoring in 2023 as macroeconomic volatility and increased cost-of-living may be starting to affect delinquencies,” Mellman added.
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