Rising house prices juice average growth in US homeowners’ equity
LOS ANGELES – Soaring home prices have pushed average homeowners’ equity growth to its highest level in more than a decade, though recent signs of a slowdown in the US real estate market point to more moderate gains in the second semester.
Homes with a mortgage gained an average of $ 51,500 in equity in the second quarter, an increase of 29.3% from the April to June quarter of last year, according to real estate information company CoreLogic. . This was the highest quarterly average gain in home equity since the second quarter of 2010, the company said.
This equates to nearly $ 3 trillion in equity earned by U.S. homeowners with a mortgage, which is about 63% of all homes, CoreLogic said. Average homeowners’ equity jumped nearly 20% in the first quarter from a year earlier.
Growing home equity can have a huge impact on the economy, giving homeowners more financial flexibility to make big purchases or build a nest egg. Rising home values are also making it increasingly difficult for future homeowners to purchase.
Homeowners in California, Washington state and Idaho recorded one of the largest average increases in equity in the second quarter: $ 116,000 in California, $ 103,000 in Washington state, and $ 97,000 in Idaho.
The surge in homeowners’ equity gains follows a record rise in U.S. home prices this year in a scorching housing market fueled by ultra-low mortgage rates, a tight inventory of properties for sale and the desire many potential buyers to have more living space during the pandemic.
S&P said this week that its closely watched S&P CoreLogic Case-Shiller 20-City Home Price Index jumped 19.9% in July from a year earlier, the largest increase since 2000.
Still, there are signs that the surge in home prices fueling homeowners’ equity may have peaked. The most recent housing market snapshot from the National Association of Realtors showed that the median price of previously occupied U.S. homes rose 14.9% in August from the previous year to $ 356,700. This is a more modest gain than at the start of the year, when the year-over-year increases were 20-25%.
“It looks like there has been this lag from July to August where there is starting to be a bit of a pullback when it comes to price developments,” said Ali Wolf, chief economist at Zonda Economics, a tracker of the real estate sector.
Wolf predicts that US home price growth will slow to around 5% next year, citing slightly higher mortgage rate expectations and a small but noticeable increase in the number of homes on the market.
“The days of skyrocketing house prices are behind us,” she said.
In his latest quarterly housing forecast, mortgage buyer Freddie Mac predicts home prices will rise 5.3% next year, up from an expected increase of 12.1% in 2021.
If this outlook for home prices holds, it would translate into a less scorching pace for homeowners’ net worth growth next year. Yet the disproportionate growth in homeowners’ equity this year will have ripple effects for the economy in general and the housing market.
The increase in owner’s equity creates a buffer for borrowers against potential financial hardship, such as job loss. And it can give homeowners the financial flexibility to borrow against their equity to pay off high interest debt or finance large purchases, such as home improvement projects, which can boost the economy.
“It’s good for broader economic growth, but there is an ugly side to the current price point,” Wolf said. “Those who chose not to buy a house or couldn’t do it find it very difficult to enter the market now, and in many cases these people are missing out on wealth accumulation. “
Soaring home prices this year have made buying more difficult for future homeowners. First-time buyers accounted for 29% of home sales in August, according to the National Association of Realtors. A year ago, they represented 33% of buyers.
The homeownership rate in the United States was 65.4% in the second quarter, down from 66.6% last year and 66.2% a decade ago.
Increasing home equity has helped limit the number of homeowners who find themselves “underwater” on their mortgage, or who owe more on their loan than the value of their home. Also known as having negative equity, this can happen when a home’s value goes down or the mortgage amount goes up, such as when a person takes out a home equity loan.
At the end of the second quarter, 1.2 million homes, or 2.3% of all U.S. homes with a mortgage, were in negative equity, CoreLogic said. This is 30% less than in the same quarter last year.
Among U.S. metropolitan areas, Chicago had the largest share of homes with negative equity in the April-June quarter at 5.2%, the company said.