U.S. Housing Wealth Rises as Home Equity Grows $726 Billion

U.S. homeowners saw their housing wealth continue to rise through the third quarter of 2016, growing by an aggregate amount of $726 billion compared to a year ago, according to a recent analysis from CoreLogic (NYSE: CLGX).

Year-over-year, the increase of home equity represented a growth of 10.8% during the third quarter compared with the same quarter in 2015. On a monthly basis, U.S. homeowners saw their equity increase by a total of $227 billion, a gain of 3.1% compared to the prior quarter.

As equity grew nationally, 384,000 borrowers moved out of negative equity, increasing the percentage of homes with positive equity to 93.7% of all mortgage properties, or approximately 47.9 million homes, according to CoreLogic.

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Meanwhile, the total number of mortgaged residential properties with negative equity stood at 3.2 million, or 6.3% of all homes with a mortgage.

This represents a decrease of 10.7% quarter-over-quarter from 3.6 million homes, or 7.1% of mortgage properties, in the second quarter of 2016; and a year-over-year decrease of 24.1% from 4.2 million homes, or 8.4% of mortgaged properties, during the third quarter of 2015.

The national aggregate value of negative equity was about $282 billion at the end of the third quarter of 2016, falling approximately $2.1 billion, or 0.8%, from $284 billion in the second quarter; and dropping year-over-year about $25 billion, or 8.2%, from nearly $307 billion in the third quarter of 2015.

For the average homeowners, home equity increased $12,500 over the last four quarters, said Dr. Frank Nothaft, CoreLogic’s chief financial officer.

While home equity grew approximately $13,000, on average, from the third quarter of 2015 to the third quarter of 2016, states such as California, Oregon and Washington had increases of $25,000 to $30,000.

“There was wide geographic variation with homeowners in California, Oregon and Washington gaining an average of at least $25,000 in home equity wealth, while owners in Alaska, North Dakota and Connecticut had small declines, on average,” Nothaft stated in a press release.

Among all states, Texas had the highest percentage of homes with positive equity at 98.4%, followed by Alaska with 98.1%, Colorado at 97.9%, Utah with 97.9% and Washington at 98.9%.

Of the 10 largest metropolitan areas by population, San Francisco-Redwood City-South San Francisco, Calif. had the highest percentage of mortgaged properties in a positive equity position at 99.4%.

Following close behind was Houston-The Woodlands-Sugar Land, Texas (98.5%); Denver-Aurora-Lakewood, Colo. (98.4%); Los Angeles-Long Beach-Glendale, Calif. (96.9%); and Boston, Mass. (95.3%).

Conversely, Nevada had the highest share of mortgage properties in negative equity at 14.2%, followed by Florida (12.5%), Illinois (10.6%), Arizona (10.6%) and Rhode Island (10%). Combined, these top five states accounted for 30.6% of negative equity mortgages in the U.S., but only 16.3% of outstanding mortgages.

Of the same 10 largest metro areas, Miami-Miami Beach-Kendall, Fla. had the highest share of mortgaged properties in negative equity at 17%; followed by Las Vegas-Henderson-Paradis, Nev. (16.2%); Chicago-Naperville-Arlington Heights, Ill. (12.2%); Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.V. (8.7%); and New York-New Jersey-White Plains, N.Y.-N.J. (5.1%).

The bulk of home equity for mortgaged properties is concentrated at the high end of the housing market. For example, 96% of homes valued at greater than $200,000 have equity compared with 90% of homes valued at less than $200,000, according to CoreLogic.

Price appreciation is the main ingredient for home equity wealth creation, said CoreLogic CEO Anand Nallathambi. Home prices rose 58% in the year ending September 2016, according to the CoreLogic Home Price Index.

“Paydown of principal is the second key component of equity building,” Nallathambi said in release. “Many homeowners have refinanced into shorter-term loans, such as a 15-year loan, and by doing so, they have significantly fewer mortgage payments and are able to build equity wealth faster.”

Written by Jason Oliva

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