Here’s some great news for homeowners: They’re home equity rich.
With housing prices reaching record highs, a large and growing share of homeowners owe far less than what their homes are worth on the market.
About 39.5% of homes with mortgages in the U.S. were equity rich in the third quarter of 2021, according to a recent report from real estate information firm ATTOM Data Solutions. That’s compared with just 28.3% of homes this time last year. This means that homeowners could sell their homes for at least twice the amount they owe on their mortgages.
“There is no doubt that homeowners continue benefiting big-time from the relentless home price increases we are seeing around the country,” says Todd Teta, chief product officer of ATTOM.
In addition, homeowners are putting more money down when they buy a house, which builds equity right from Day 1.
Almost every state saw equity rates increase and underwater rates decrease, but the states with the largest share of equity-rich homes are concentrated in the West, where prices are also the highest.
Idaho, where prices have boomed in recent years, leads the pack as 65.1% of all homes with mortgages there were equity rich. Median list prices in the state surged nearly 28% in October compared with the same month a year earlier, according to the most recent Realtor.com® data. The rise is largely due to an influx of new residents moving in from California and other pricey states over the past few years, particularly during the COVID-19 pandemic.
The other states with the highest rates of home equity were Vermont (61.2%), Utah (60.9%), Washington (56.2%), and Arizona (53.2%).
In another good sign, there are also fewer homes that are seriously underwater. (A home is underwater when the owner owes far more to the bank than the house is worth.) Only 3.4% of homes with a mortgage were underwater in the third quarter, compared with 6% the year before. This is likely due to the high prices in the market.
However, the number of properties with foreclosure filings surged 68%. This is a direct result of foreclosure moratoriums enacted to protect homeowners at the beginning of the pandemic starting to expire. So a backlog of foreclosures that were stalled is now proceeding.
Although foreclosure is never a pleasant situation, if homeowners have equity in their property, at least that means they have the option of selling it and using those funds to find a cheaper living situation.
High equity rates can also inject a little more juice into the economy, as homeowners can tap into the equity in their house and use it to take out certain kinds of loans or a line of credit. That money could then be used to start a business or pay for remodeling.
“That translates into tens of thousands of dollars a year for 58 million mortgage payers—a major boost for the U.S. economy as it keeps climbing out from under the pandemic,” says Teta.