U.S. Homeowner Equity Tops $8 Trillion in Second Quarter

Homeowners in the United States now control more than $8 trillion in home equity, more than double the amount from just five years ago.

The average homeowner reaped $13,000 in additional home equity between the second quarters of 2016 and 2017, according to the most recent data from real estate research firm CoreLogic. Western homeowners saw the biggest jumps, with Washington State residents logging a $40,000 boost, Hawaiians taking home $34,000, and Californians gaining $30,000 in additional equity.

Utah and Massachusetts — the only East Coast state to break $20,000 in gains — rounded out the top five. Only Alaskans saw a decline, with the average homeowner in the Last Frontier losing $1,000.

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“Over the last 12 months, approximately 750,000 borrowers achieved positive equity,” CoreLogic chief economist Frank Nothaft said in the report. “This means that mortgage risk continues to decline and, given the continued strength in home prices, CoreLogic expects home equity to rise steadily over the next year.”

Negative equity — which occurs when a home is “underwater,” or worth less than the mortgage value — ticked up slightly from the first quarter of this year, but still remains below last year’s figure: U.S. homeowners  had a total of $284.4 billion in negative equity, down from $285.1 billion at the same time last year. That works out to 5.4% of all mortgage properties; for comparison, American negative equity peaked in the third quarter of 2009, when 26% of all mortgage properties had negative equity, according to CoreLogic.

The Miami area continues to struggle the hardest with negative equity, with a 14.7% underwater rate; the Las Vegas, Chicago, Washington, D.C., and New York City metros followed behind in the top five cities for negative equity.

Still, CoreLogic remained upbeat about overall home equity trends in the present and the near future.

“This rapid rise in homeowner equity not only reduces mortgage risk, but also supports consumer spending and economic growth,” CoreLogic president and CEO Frank Martell said in the report.

Written by Alex Spanko

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  • Alex does a good job of bringing up the problem of the uneven benefit nationally from the average national appreciation rates that are reported by the press. In some areas it is better than in others both historically and currently. For example, in Ames Iowa, loss in appreciation was not as adverse in 2007 and for the next year or so thereafter as it was in Stockton California (foreclosure capitol of the US back then, per 60 Minutes). Yet in the last 5 decades,average Ames, IA appreciation has never been as good as it is Huntington Beach, CA (Surfing USA).

    Great home appreciation may be almost worthless to the HECM program in two substantial ways. First, if seniors do not perceive that their homes have substantial appreciation when in fact they do, it is much harder to demonstrate the value of the various strategies by which a HECM can enhance their retirement experience. Second, if appreciation is highly concentrated in areas where HECM collateral is sparse, for example, places in California like Bel Air, Brentwood, Malibu, Pacific Palisades, Santa Monica, Encino, Sherman Oaks, San Jose, the San Francisco north and south peninsulas, etc. or in areas where HECM collateral is highly concentrated but the appreciation already meets or exceeds the appreciation rate used in determining the PLF used in deriving the Principal Limit on that HECM, the related rates generally increase the national average appreciation rate, but do little to mitigate against further losses in the MMI Fund.

    While the headlines are pleasing to most of us individually as homeowners, and to a significant percentage of senior homeowners, what in fact do they do for the HECM portfolio valuation in the MMI Fund? Remember termination losses are substantially based on collateral value and the balance due as of the date of termination. (Other costs that weigh in are title transfer costs including foreclosure, fix up costs, REO maintenance costs, and selling costs. Of course, offsetting any loss on termination are the MIP payments received by HUD on the property.)

    Valuation of the HECM portfolio within the MMI Fund is also highly dependent upon the interest discount rate assumptions used in determining the current value of future cash inflow and outflow. For example, in the last 49 months, HUD has expended over $13 billion in acquiring HECMs qualifying for assignment. Now the MMI fund will receive cash inflow upon termination; however, the current value of that cash in the future is less than the estimated amount that will be received at termination.

  • I read the article, I also read my friend, The_Cynic’s comment. Very good, especially with the statistics!

    However, I hear so much the doom and gloom discussed around the industry (I am not referring to The_Cynic,s comment) but I take this article and the statistics Alex posted as great news!

    Sure, we have seen many changes, the latest one not to good in many ways, however, we have more equity in home ownership than we ever have, that is good news!

    You know that a great deal of this equity is positioned in homes owned by our senior population. This tells me we have plenty of opportunity out there.

    We need to go after it differently than we have, find new markets, search and locate the seniors with equity or no liens on their homes!

    We have to look at our product more of a retirement planning tool than one to bail out those in need. I am NOT saying for us to not try and help those get out of debt, improve their quality of life, on the contrary.

    What I am saying is that in to days environment, those we do help as I described above need to be in a different financial bracket than what we used to be able to help 4 or 5 years ago. In fact, you will find that those we help today as I described, we are really planning their retirement stragety for them!

    John A. Smaldone
    http://www.hanover-financial.com

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