Home equity reaches a 4-year high
The percentage of equity-rich homes hit 49% in the second quarter, rebounding after a decline earlier in the year.
- High equity mean better profits for sellers, while homeowners who stay put will continue to build wealth.
- An equity cushion has helped limit foreclosures, and only 2.8% of mortgaged homes were seriously underwater in Q2.
- Midwest states saw the biggest equity gains, while a handful of states experienced declines.
Many sellers and homeowners are sitting pretty as home equity staged a nice comeback in the second quarter.
The latest home equity report from ATTOM found that 49% of mortgaged residential properties in the U.S. were considered equity-rich, meaning that borrowers owed 50% or less of the value of their home.
That's the highest level in at least four years, topping even the early-pandemic days when home prices were surging. The percentage of equity-rich properties had fallen for two straight quarters, dropping to 47% last month, before this most recent turnaround.
"The second-quarter market revival bestowed immediate benefits on homeowners around the nation in the form of better profits for sellers and rising equity for those staying put. Equity levels were high even during the recent downturn, and now they are going back up and better than ever," said Rob Barber, CEO for ATTOM.
"It is well worth nothing that the market remains in flux and the recent improvement could easily be temporary," Barber cautioned. "But with the 2023 peak buying season still underway, it seems that homeowners can reasonably expect their household balance sheets to grow a bit more in the near future."
The rise in home values has also helped stave off any significant increases in distressed properties. ATTOM reports only 2.8% of mortgaged properties were seriously underwater in the second quarter, the lowest point since at least 2019.
And for those homes that were facing foreclosure in the second quarter, 92% had at least some equity built up. At 97%, Utah had the highest percentage of potential foreclosures with some equity, while Louisiana had the lowest at 82%.
Equity funneled into remodeling
This high level of equity-rich homeowners has fueled the boom in the home renovation market, according to the Mortgage Bankers Association. Home Equity Lines of Credit (HELOCs) and home equity loans jumped 50% in 2022 compared to two years earlier, according to the latest MBA report.
Marina Walsh, MBA's vice president of industry analysis, said home renovations were cited in nearly two-thirds of the home equity loan applications, followed by debt consolidation (25%) and emergency cash management or other (10%).
But for potential buyers, an increase in the number of homeowners opting to remodel rather than sell means even less available inventory of existing homes.
"The housing inventory shortage, combined with home-price appreciation and a low-rate first mortgage, make home renovations an attractive alternative for many homeowners who are looking to improve their spaces," Walsh said.
Midwest homeowners gained the most equity
As buyers looked to the Midwest for more affordable homes, prices and equity rose significantly in the region. Wisconsin, where the percentage of equity-rich homes jumped from 41.6% to 47.1%, saw the biggest gains between the first and second quarter, followed by Michigan and South Dakota.
The South and West regions had slower growth in home equity, with some states, including Nevada, Louisiana and Arizona, seeing a decline in the percentage of equity rich properties.
States with the highest levels of equity-rich properties were Vermont (77.5% of mortgaged homes were equity-rich), California (63.3%) and Montana (60.9%). The lowest were Louisiana (23%), Alaska (29.2%) and Illinois (29.5%).