Home Equity Update: The Average Homeowner Gained More Than $55K

You may not be aware of it, but if you own a home, your net worth just went up. This is thanks to an increase in home equity, or your home’s value less whatever amount you still owe on your home loan. As home values rise while your debt on the home declines, or even remains the same, your equity increases in kind. And, this is without making any improvements whatsoever to your home.

The current rise in home values is due to the disparity between high demand among prospective homebuyers and only a limited supply of homes on the market to meet that demand. The more people interested in buying a home and the fewer homes available for them to buy, the higher home values in general rise, whether or not they’re even on the market. This has created a market environment in which bidding wars are increasingly common, only driving up home values further.

A recent CoreLogic Homeowner Equity Insights report noted an 18-percent rise in home prices in 2021, which makes for the biggest recorded annual gain in the 45-year history of the CoreLogic Home Price Index. This, CoreLogic’s Chief Economist Dr. Frank Nothaft notes, is "generating a big increase in home equity wealth." As he goes on to point out, "For low- and moderate-income homeowners, home equity has historically been a major source of wealth."

Specifically, homeowners with mortgages, or the owners of about 63 percent of all homes, have seen a total equity increase of more than $3.2 trillion since Q4 2020, marking a 29.3-percent year-over-year increase. That breaks down to an average homeowner equity increase of $55,300 over the 12 months leading up to Q4 2021

At the same time, the report found negative equity or the debt borrowers hold on their home mortgages that are greater than the value of those homes (often termed as being "upside down" or "underwater") has dropped by three percent since the previous quarter, or Q3 2021. That accounts for only 2.1 percent of all mortgaged homes or 1.1 million homes. Year over year, negative equity dropped by 24.9 percent, representing 2.8 percent of all mortgaged properties, or 380,000 homes from 1.5 million homes in Q4 2020. In addition to resulting from a decrease in home prices, negative equity can also result from a rise in mortgage debt.

The report predicts home prices will continue to rise 5 percent between December 2021 and December 2022, which would lead to 141,000 of those homes with negative equity regaining equity.

Equity not only builds up your total net worth, but it also can help you buy your next home or reach any other financial goals you may have. This is because, when you sell your home, you receive your equity as funds you can then put to those purposes. It could even be enough to cover the down payment on the mortgage for that next home.

To learn how you can put this sudden rise in home equity to work for you, contact your trusted real estate agent in Dallas.