Equity Declined In Q4 2022, But Remains Double Pre-Pandemic Levels

Home equity gains slipped in Q4 2022 as declining property values outpaced mortgages being paid off but homeowners are still largely equity-rich.

New data from ATTOM found that 48% of U.S. mortgaged residential properties were considered equity-rich. This is down slightly from Q3’s 48.5% but remains nearly double the pre-pandemic number. Most homeowners are still benefitting from historically high property values.  More than 94% of homeowners have some level of equity built up in their homes.

This dip is the third straight month of declining equity values, however, turning the tables on the ten prior months, which all saw gains.

“Dents are beginning to surface in the armor around the U.S. housing market after 11 years of a strong showing for owners,” said Rob Barber, CEO for ATTOM.

“Home values have been dropping since the middle of last year, which appears to be starting to cut into homeowner equity around the country. That’s probably happening because values are sinking faster than owners are paying off their mortgages. How that shakes out over the next few months will depend on a lot of factors, including where interest rates go. But for now, it looks like the runup in wealth flowing from owning homes has stalled along with the market.”

The FOMC raised interest rates by a quarter point this week, coming down from 75 and 50 BPS hikes for the first time since March. Though inflation has eased some, the Fed is expected to continue increases into 2023.

Fed Chairman Jerome Powell noted that activity in the housing sector continues to weaken largely due to higher mortgage rates.

Last week, Freddie Mac released data showing the 30-year fixed-rate mortgage averaged 6.13%. The GSE forecasts that the average 30-year mortgage will end the year at 6.2% in Q4 2023.

The data indicates that the home price correction is finally taking a toll on homeowners who have benefited from years of acceleration. Equity has been falling since prices started declining, down $1.3 trillion in Q3 from Q2, and close to $1.5 trillion from its peak in May.

This was the largest quarterly drop by dollar value ever recorded “by far,” according to Black Knight Data & Analytics President Ben Graboske. By percentage, it’s the biggest decline since 2009.

“That said, it’s important to note that — even with 275K falling underwater since May — fewer than half a million homeowners owe more on their homes than their current values. Historically speaking, that is still extremely low,” he said.

Homeowners still have unprecedented access to home equity lines of credit. Home equity packages comprised one of every five mortgage deals completed in Q3 2022.

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