Housing markets with highest share of equity-rich households undergo biggest corrections

Austin Business Journal reports, "even with a rapidly cooling housing market, homeowners across the U.S. are sitting on near-record levels of equity.

A recent analysis by Irvine, California-based Attom Data Solutions LLC found 48.5% of mortgaged residential properties nationally were considered equity-rich in the third quarter. A property is considered equity-rich when the amount of loan balances secured by it is no more than 50% of its estimated market value.

With the housing market downturn that began this summer, though, $1.3 trillion in recently added equity vanished from the market in Q3, according to Black Knight Inc. (NYSE: BKI), a mortgage software and analytics company.

By Attom's measurement, Q3 2022 continued to see gains in homeownership equity, the 10th consecutive quarterly increase, although at a slower rate than previous quarters. Equity positions were $5 trillion, or 46%, higher than pre-pandemic levels in Q3, according to Black Knight.

Markets with the highest percentage of equity-rich households are generally ones that saw meteoric price appreciation through the Covid-19 pandemic — and are also slowing the fastest in the wake of higher mortgage rates. They're also the ones more likely to have seen declines in their share of equity-rich mortgaged homes between Q2 and Q3 2022.

In fact, it's because of record-high price appreciation that pandemic boom markets are disproportionately equity rich, said Rick Sharga, executive vice president of market intelligence at Attom. Among markets tracked by Attom, the metropolitan statistical areas with the lowest amount of homeowner equity are slower-growth markets, but aren't cooling off as rapidly now.

Homeownership equity is frequently cited as a major reason why the current housing downturn is markedly different than the conditions of the 2008 global financial crisis.

Attom found 2.9% of mortgaged homes nationally are considered seriously underwater, meaning the balance of loans secured by the property is at least 25% more than its estimated market value.

In the event of a recession, it does become more difficult for owners of properties already underwater to climb out of it, Sharga said.

"The reality is, home prices do tend to come back up," he said. "The broader question is whether we’ll see a larger percentage of homeowners winding up underwater as prices decline."

A persistent housing shortage should help maintain a floor in how much home prices will drop, said Orphe Divounguy, senior economist at Zillow Group Inc. (Nasdaq: ZG).

The National Association of Realtors found 49% of its members in 2008 were working with a client on a distressed sale, compared to 1% of Realtors today, according to a September 2022 report.

Austin, Texas — the MSA with the highest share of equity-rich households in the country, according to Attom — has seen its median home values increase 65.8% between March 2020 and September 2022, a recent Business Journals analysis of Zillow data found. It's unlikely for home prices to fall so much that they completely erase the gains owners experienced before the recent slowdown, Divounguy said.

In the wake of high inflation, though, a growing number of households are leveraging significant equity gains by pursuing home equity lines of credit, or HELOCs. The number of HELOCs issued in Q2 2022 increased 43% from the prior year, according to Attom.

Sharga said, because more homeowners are opting to stay in their homes, they're tapping into home equity to make improvements, which'll likely make their home more valuable when they eventually list it on the market.

But more homeowners are using HELOCs to pay down their credit-card bills or as a hedge if their employment is affected by a recession. The rise in HELOC activity can also likely be attributed to lenders more aggressively promoting HELOCs, Sharga added, because of the rapid slowdown in other lending activities.

"It’s not an area of concern yet," he said, of the increase in HELOC activity, but if people start to use those lines of equity to pay for monthly necessities, that becomes a bigger issue, he added."


Source: Austin Business Journal

Written by: Ashley Fahey

Published: November 9, 2022

Posted by Grossman & Jones Group on


Email Send a link to post via Email

Leave A Comment

e.g. yourwebsitename.com
Please note that your email address is kept private upon posting.