The Resilience of Equity: Why Temporary Drops Don't Define Overall Value

You may see media coverage talking about a drop in homeowner equity. What’s important to understand is that equity is tied closely to home values. So, when home prices appreciate, you can expect equity to grow. And when home prices decline, equity does too. Here’s how this has played out recently. 

Home prices rose rapidly during the ‘unicorn’ years. That gave homeowners a considerable equity boost. But those ‘unicorn’ years couldn’t last forever. The market had to moderate at some point, and that’s what we saw last fall and winter. 

As home prices dropped slightly in the back half of 2022, equity was impacted. Based on the most recent report from CoreLogic, there was a 0.7% dip in homeowner equity over the last year. However, the headlines reporting on that change aren’t painting the whole picture. The reality is, while home price depreciation during the second half of last year caused equity to drop, the data shows homeowners still have near record amounts of equity

The graph below helps illustrate this point by looking at the total amount of tappable equity in this country going all the way back to 2005. Tappable equity is the amount of equity available for homeowners to access before hitting a maximum 80% loan-to-value ratio (LTV). As the data shows, there was a significant equity boost during the ‘unicorn’ years as home prices rapidly appreciated (see the pink in the graph below).

But here’s what’s key to realize – even though there’s been a small dip, total homeowner equity is still much higher than it was before the ‘unicorn’ years.

And there’s more good news. Recent home price reports show the worst home price declines are behind us, and prices have started to go up again. As Selma Hepp, Chief Economist at CoreLogicexplains:

“Home equity trends closely follow home price changes. As a result, while the average amount of equity declined from a year ago, it increased from the fourth quarter of 2022, as monthly home prices growth accelerated in early 2023.” 

The last part of that quote is particularly important and is the piece of the puzzle the news is leaving out. To further emphasize the positive turn we’re already seeing, experts say home prices are forecast to appreciate at a more normal rate over the next year. In the same report, Hepp puts it this way:

The average U.S. homeowner now has more than $274,000 in equity – up significantly from $182,000 before the pandemic. Also, while homeowners in some areas of the country who bought a property last spring have no equity as a result of price losses, forecasted home price appreciation over the next year should help many borrowers regain some of that lost equity.”

And even though Odeta Kushi, Deputy Chief Economist at First American, references a slightly different number, Kushi further validates the fact that homeowners have a lot of equity right now: 

“Homeowners today have an average of $302,000 in equity in their homes.”

That means if you’ve owned your home for a few years, you likely still have way more equity than you did before the ‘unicorn’ years. And if you’ve owned your home for a year or less, the forecast for more typical price appreciation over the next year should mean your equity is already on the way back up.

Bottom Line

Context is everything when looking at headlines. While homeowner equity dropped some from last year, it’s still near all-time highs. Let’s connect so you can get the answers you deserve from an expert who’s here to help as you plan your move this year.

110 Properties
Page 1 of 10
$895,000
Neighborhood: South Creek
3
Beds
2
Baths
2,837
Sq.Ft.
1998
Year Built
2
Days on Site
A4607404
MLS
$250,000
Neighborhood: Pine Run Ii
2
Beds
2
Baths
1,325
Sq.Ft.
1979
Year Built
3
Days on Site
A4604037
MLS
$1,050,000
Neighborhood: Baypointe Vista 1
3
Beds
3
Baths
2,100
Sq.Ft.
1997
Year Built
7
Days on Site
A4606868
MLS
$292,000
Neighborhood: Pine Run Ii
2
Beds
2
Baths
1,223
Sq.Ft.
1979
Year Built
8
Days on Site
A4606661
MLS
$585,000
Neighborhood: Sorrento Villas 1
2
Beds
2
Baths
1,411
Sq.Ft.
1967
Year Built
9
Days on Site
A4605847
MLS
$1,340,000
Neighborhood: Meridian At The Oaks Preserve
3
Beds
3
Baths
2,680
Sq.Ft.
2006
Year Built
9
Days on Site
A4604118
MLS
Open 4/21
280 Hidden Bay Dr #203 Osprey,  FL 34229
3
Beds
2
Baths
1,937
Sq.Ft.
2023
Year Built
10
Days on Site
A4606472
MLS
Open 4/21
280 Hidden Bay Dr #302 Osprey,  FL 34229
3
Beds
2
Baths
1,937
Sq.Ft.
2023
Year Built
10
Days on Site
A4606463
MLS
Open 4/21
280 Hidden Bay Dr #204 Osprey,  FL 34229
3
Beds
2F11/2
Baths
2,166
Sq.Ft.
2023
Year Built
10
Days on Site
A4606470
MLS
Open 4/19
140 N Casey Key Rd Osprey,  FL 34229
$3,400,000
Neighborhood: Acreage & Unrec
3
Beds
3F11/2
Baths
2,473
Sq.Ft.
1985
Year Built
15
Days on Site
T3505796
MLS
$965,000
Neighborhood: Southbay Yacht & Racquet Club
3
Beds
2
Baths
2,015
Sq.Ft.
1986
Year Built
17
Days on Site
A4605059
MLS
$720,000
Neighborhood: Bishopscourt Townhomes
2
Beds
2F11/2
Baths
1,890
Sq.Ft.
1984
Year Built
17
Days on Site
A4604767
MLS

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