Share Of Underwater Borrowers Shrank In Q2 2023

Recent home price gains have helped some homeowners with underwater mortgages.

CoreLogic reported that only 2% of homeowners with a mortgage were in negative equity in Q2 2023, 6.3% fewer than in Q1 and on-trend with numbers from the last two years.

Home prices have risen this year after a months-long downturn. Though homeowners lost $8,300 (+5.2%) in equity YOY, their quarterly gains were nearly $14,000. As a result, 75,000 borrowers whose mortgages went underwater are back on dry land.

“While U.S. home equity is now lower than its peak in the second quarter of 2022, owners are in a better position than they were six months ago when prices bottomed out,” said Selma Hepp, chief economist for CoreLogic.

“Also, while more borrowers are underwater compared with one year ago, they are not necessarily concentrated in markets that have seen the largest price declines, as negative equity also depends on the down payment. Natural disasters and related risks also play a substantial role in home equity changes.”

The average homeowner now has roughly $290,000 in equity but that may go down in CoreLogic’s next data set thanks to natural disasters.

Maui’s wildfires, which destroyed at least 3,000 structures and left more than 100 people dead, could affect the nation’s equity overall in the coming months. Hurricanes in Florida have also damaged homes, and more destruction is likely. A Category 5 storm is currently brewing in the Atlantic, and new forecasts predict three to five more hurricanes this season.

Natural disasters can negatively impact personal wealth and the housing market overall for decades. Nearly 20 years later, many New Orleans residents are still financially reeling from the devastation of Katrina.

Northeastern states, which have seen a burst of demand in recent days, recorded the highest equity gains in Q2, while the West’s pattern of losses continued. The West and South are especially vulnerable to climate-related housing damage from storms or fires.

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