A Drop in Equity Doesn’t Mean Low Equity

You may see media coverage talking about a drop in homeowner equity. What’s important to understand is that equity is tied closely to home values. So, when home prices appreciate, you can expect equity to grow. And when home prices decline, equity does too. Here’s how this has played out recently. Home prices rose rapidly during the ‘unicorn’ years. That gave homeowners a considerable equity boost. But those ‘unicorn’ years couldn’t last forever. The market had to moderate at some point, and that’s what we saw last fall and winter. As home prices dropped slightly in the back half of 2022, equity was impacted. Based on the most recent report from CoreLogic, there was a 0.7% dip in homeowner equity over the last year. However, the headlines reporting on that change aren’t painting the whole picture. The reality is, while home price depreciation during the second half of last year caused equity to drop, the data shows homeowners still have near record amounts of equity. The graph below helps illustrate this point by looking at the total amount of tappable equity in this country going all the way back to 2005. Tappable equity is the amount of equity available for homeowners to access before hitting a maximum 80% loan-to-value ratio (LTV). As the data shows, there was a significant equity boost during the ‘unicorn’ years as home prices rapidly appreciated (see the pink in the graph below).But here’s what’s key to realize – even though there’s been a small dip, total homeowner equity is still much higher than it was before the ‘unicorn’ years.And there’s more good news. Recent home price reports show the worst home price declines are behind us, and prices have started to go up again. As Selma Hepp, Chief Economist at CoreLogic, explains:“Home equity trends closely follow home price changes. 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.” The last part of that quote is particularly important and is the piece of the puzzle the news is leaving out. To further emphasize the positive turn we’re already seeing, experts say home prices are forecast to appreciate at a more normal rate over the next year. In the same report, Hepp puts it this way:“The average U.S. homeowner now has more than $274,000 in equity – up significantly from $182,000 before the pandemic. 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.”And even though Odeta Kushi, Deputy Chief Economist at First American, references a slightly different number, Kushi further validates the fact that homeowners have a lot of equity right now: “Homeowners today have an average of $302,000 in equity in their homes.”That means if you’ve owned your home for a few years, you likely still have way more equity than you did before the ‘unicorn’ years. And if you’ve owned your home for a year or less, the forecast for more typical price appreciation over the next year should mean your equity is already on the way back up.Bottom LineContext is everything when looking at headlines. While homeowner equity dropped some from last year, it’s still near all-time highs. Reach out to a trusted real estate professional so you can get the answers you deserve from an expert who’s there to help as you plan your move this year.

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The Key Advantage of Investing in a Home [INFOGRAPHIC]

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One Major Benefit of Investing in a Home

One of the many reasons to buy a home is that it’s a major way to build wealth and gain financial stability. According to Freddie Mac:“Building equity through your monthly principal payments and appreciation is a critical part of homeownership that can help you create financial stability.”With spring approaching, now’s a great time to consider if buying a home makes sense for you. The best way to figure that out is to talk with a trusted real estate professional.The Largest Part of Most Homeowners’ Net Worth Is Their EquityYou may be surprised to learn just how much of a homeowner’s net worth actually comes from owning their home. The National Association of Realtors (NAR) shares:“Homeownership is the largest source of wealth among families, with the median value of a primary residence worth about ten times the median value of financial assets held by families. Housing wealth (home equity or net worth) gains are built up through price appreciation and by paying off the mortgage.”In other words, home equity does more to build the average household’s wealth than anything else. And according to data from First American, this holds true across different income levels (see graph below):Bottom LineOne of the biggest benefits of owning a home, regardless of your income level, is that it provides financial stability and an avenue to build wealth. Let’s connect today so you can start investing in homeownership.

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