Equity Down $1.3T From Q2, Largest Quarterly Dollar Drop On Record

Homeowner equity saw a contraction in Q3 2022 as dropping prices are finally taking their toll, according to Black Knight’s latest Mortgage Monitor Report.

Home prices are cooling at a slower pace than they have been in the last few months, but the impact of those price drops is catching up to homeowners basking in record-high equity levels.

Equity is down $1.3 trillion from Q2, and close to $1.5 trillion from its peak in May. This is the largest quarterly drop by dollar value ever recorded “by far,” Black Knight Data & Analytics President Ben Graboske noted. By percentage, it’s the biggest decline since 2009.

“As we reported at the time, while hitting a record high in Q2, total homeowner equity peaked mid-quarter in May and has been pulling back ever since. All in, equity among mortgaged properties is now down nearly $1.5T since that point. From a risk perspective, we’ve already seen the number of underwater borrowers more than double alongside the equity pullback,” he said.

“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.”

Dollars aside, the share of homes with equity increased in Q3 to 48.5%, up from 48.1% in Q2 and from 39.5% a year earlier, according to recent data from ATTOM.

At least half of mortgagees in twenty states are now equity-rich, compared to only seven states at the same time last year. In total, 94.3% of all mortgage holders have at least some equity in their homes.

But lenders may want to keep an eye on contracting equity as HELOC loans gain popularity. The number of new home equity lines of credit increased by 43% YOY in Q3.

Mortgage holder equity remains $5 trillion, or 46%, above pre-pandemic levels, so many homeowners are excellent candidates for a home equity loan. Black Knight noted that additional declines “may be on the horizon” but that homeowner equity is generally still strong.

“Of course, this — along with rising interest rates — increases the potential for even further headwinds in equity lending as well as heightened default risk,” Graboske said.

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