Despite Coronavirus, U.S. Homeowners Gained Record $1.5 Trillion of Equity in 2020

Despite Coronavirus, U.S. Homeowners Gained Record $1.5 Trillion of Equity in 2020

Residential News » Laguna Beach Edition | By Michael Gerrity | March 12, 2021 8:20 AM ET

Average annual equity gain of $26,300 per homeowner

According to CoreLogic's latest Home Equity Report for the fourth quarter of 2020, U.S. homeowners with mortgages (which account for roughly 62% of all properties) have seen their equity increase by 16.2% year over year, representing a collective equity gain of over $1.5 trillion, and an average gain of $26,300 per homeowner, since the fourth quarter of 2019.

As competition for the dwindling supply of for-sale homes drove prices up, average annual homeowner equity gains in the fourth quarter of 2020 reached the highest level since 2013. For current owners, these gains have created a buffer against financial difficulties brought on by the pandemic, and enabled means for pursuing renovations as people are spending more time at home. For the broader market, home equity gains have also reduced the risk of homes falling underwater and pushing distressed sales into the market.

WPJ News | Frank Nothaft, Freddie Mac's chief economist
Dr. Frank Nothaft

"Compared with a year earlier, home prices in December 2020 were up sharply -- 9.2%, according to the CoreLogic Home Price Index -- boosting the amount of home equity for the average homeowner with a mortgage to more than $200,000," said Dr. Frank Nothaft, chief economist for CoreLogic. "This equity growth has enabled many families to finance home remodeling, such as adding an office or study, further contributing to last year's record level in home improvement spending."

"Positive factors like record-low interest rates and a booming housing market encouraged many families to enter homeownership," said Frank Martell, president and CEO of CoreLogic. "This growing bank of personal wealth that homeownership affords was noticed by many but in particular for first-time buyers who want a piece of the cake. As a result, we may see more of those currently renting start to enter the market in the near future."

Negative equity, also referred to as underwater or upside down, applies to borrowers who owe more on their mortgages than their homes are currently worth. As of the fourth quarter of 2020, negative equity share, and the quarter-over-quarter and year-over-year changes, were as follows:

  • Quarterly change: From the third quarter of 2020 to the fourth quarter of 2020, the total number of mortgaged homes in negative equity decreased by 8% to 1.5 million homes or 2.8% of all mortgaged properties.
  • Annual change: In the fourth quarter of 2019, 1.9 million homes, or 3.6% of all mortgaged properties, were in negative equity. This number decreased by 21%, or 410,000 properties, in the fourth quarter of 2020.
  • National aggregate value: The national aggregate value of negative equity was approximately $280.2 billion at the end of the fourth quarter of 2020. This is down quarter over quarter by approximately $3.4 billion, or 1.2%, from $283.6 billion in the third quarter of 2020, and down year over year by approximately $7.5 billion, or 2.6%, from $287.7 billion in the fourth quarter of 2019.

Because home equity is affected by home price changes, borrowers with equity positions near (+/-5%) the negative equity cutoff are most likely to move out of or into negative equity as prices change, respectively. Looking at the fourth quarter of 2020 book of mortgages, if home prices increase by 5%, 216,000 homes would regain equity; if home prices decline by 5%, 292,000 would fall underwater.

State and Metro Takeaways:

  • States with strong home price growth and high home prices continued to experience the largest gains in equity, whereas states that were hard hit by the pandemic continue to experience dwindling gains.
  • California, Idaho and Washington experienced the largest average equity gains at $54,500, $48,500 and $47,200 respectively.
  • Meanwhile, North Dakota experienced the lowest average equity gain in the fourth quarter of 2020 at $7,900.

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