BAM Key Details:
- Homeowner equity continues to grow in spite of cooling buyer demand
- The share of mortgages considered “seriously underwater” has decreased
- The West still has the most equity-rich properties
- The Midwest, Northeast, and South have the biggest increases in equity-rich homes
Here we are in the third quarter of 2022, and even with the widespread cooling in buyer demand and big drops in pending sales and home showing traffic, homeowner equity continues to grow.
While price growth has slowed, home values continue to go up, if at a slower pace than before.
At a time when potential buyers are worried the homes they buy will depreciate in value — leaving them underwater with their equity — data like this is a must-share.
Here’s what you need to know.
ATTOM’s report shows growth in equity-rich properties in Q3
According to ATTOM’s Q3 2022 U.S. Home Equity & Underwater Report, 48.5% of mortgaged residential properties in the U.S. were classified as “equity-rich” in the third quarter.
Equity-rich means the combined estimated amount of loan balances for those properties amounts to no more than half their estimated values.
The share of mortgaged homes considered equity-rich in Q3 of 2022 (48.5%) is up from 48.1% in Q2 of 2022 and 39.5% in Q3 of 2021.
The latest increase is smaller than gains made in recent years, but it represents the 10th consecutive quarterly rise. And, thanks to that rise, virtually half of all mortgage holders in 20 states are in equity-rich territory—compared to only seven states in 2021.
Even though home price appreciation has slowed down dramatically in recent months, homeowners have continued to build equity. And it appears that many of those homeowners have decided to stay where they are rather than purchase a new home, and are beginning to tap into that equity, as the number of home equity lines of credit (HELOCs) issued in the second quarter of 2022 rose by 43 percent from the prior year.
Midwest, Northeast, and South see the biggest increases in equity-rich share of mortgages
The states that saw the biggest increases in the share of mortgaged homes considered equity-rich:
- South Dakota — from 36.7% to 41.8%
- Vermont — from 71.4% to 75.9%
- Montana — from 48.1% to 51.5%
- Indiana — from 43% to 46.2%
- Mississippi — from 29.1% to 31.5%
The top five states where the share of equity-rich properties dropped the most from Q2 to Q3 are all in the West, with Idaho in the lead.
- Idaho — down from 69.5% to 65.8%
- California — down from 63.1% to 60.6%
- Utah — down from 64.3% to 62%
- Washington — down from 63.2% to 61%
- Arizona — down from 64.8% to 63.4%
Midwest, Northeast, and West see the biggest declines in seriously underwater properties
The ten states with the biggest drops in the share of mortgaged homes considered “seriously underwater” from Q2 2022 to Q3 were in the Midwest, Northeast, or West.
At the top of that list—
- Wyoming — whose share of “seriously underwater” properties dropped from 7% to 2.9%
- Montana — down from 3.9% to 3%
- Kansas — down from 5.7% to 4.9%
- Indiana — down from 3.8% to 3.1%
- Connecticut — down from 3.3% to 2.8%
Most of the five states where the share of “seriously underwater” homes increased the most from Q2 to Q3 of 2022 are in the West.
And while the increases in those shares were small, here are the largest:
- Mississippi — up from 8.1% to 9%
- California — up from 1% percent to 1.4%
- Idaho — up from 1.6% to 1.9%
- Hawaii — up from 1.3 % to 1.5%
- Washington — up from 1% to 1.2%
What does it mean to be “seriously underwater”?
The ATTOM report also shows that only 2.9% of mortgaged residential properties—or one in 35—were considered “seriously underwater” in Q3 of 2022.
To qualify as such, the combined estimated balance of loans for the property must be at least 25% more than the property’s estimated market value.
The Q3 figure (2.9%) is equal to the one recorded for Q2 of 2022 but lower than the 3.4% — or one in 29 properties — recorded for the third quarter of 2021.
The West still has the most equity-rich homeowners
Six of the top 10 states with the highest levels of equity-rich properties are in the West.
Here are the top five states:
- Vermont — 75.9% of mortgaged homes were equity-rich
- Idaho — 65.8%
- Arizona — 63.4%
- Florida — 62.8%
- Utah — 62%
On the flip side, nine of the 10 states with the lowest share of equity-rich properties in Q3 2022 were in the Midwest and South, led by the following:
- Louisiana — 24.5% of mortgaged homes
- Illinois — 26.3%
- Alaska — 26.7%
- West Virginia — 29.3%
- North Dakota — 30.9%
Overall, equity is up and underwater status is down
Overall, 94.3% of homeowners paying off mortgages built some equity in Q3 of this year—compared to 92.9% a year ago and 87.7% in Q3 of 2021.
That level goes up even more if we include homeowners who’ve already paid off their mortgages.
Across the U.S., 39 states saw increases in equity-rich shares from the previous quarter, while the number of properties with “seriously underwater” status dropped in 38 states.
Year-over-year, the share of mortgaged properties considered “equity-rich” rose in all 50 states while “seriously underwater” shares dropped in 43 states.
This is well worth sharing with your clients and community to remind them that home values are, for the most part, continuing to rise—more quickly in some areas than others.
One of the reasons we don’t believe there will be another huge wave of foreclosures is that the overwhelming majority of financially-distressed homeowners do have positive equity. If these borrowers can’t leverage the equity to refinance their current mortgage, they at least have the option of selling the property rather than losing their equity to a foreclosure auction. This option wasn’t available to distressed borrowers during the Great Recession, when many borrowers were underwater on their loans.
Top takeaway for real estate agents
You can’t promise your clients that mortgage rates will go down anytime soon, or that they’ll for sure be able to refinance if they buy a home at a mortgage rate that stretches their budget.
What you can do is show them verifiable data and information about what’s going on right now.
Being a knowledge broker for your community isn’t just about getting more people to sign on with you; it’s about helping prospective buyers in your community secure homes that they can afford and that will help them build real wealth.
It’s about being someone your community can trust to help them see past the scary headlines to the reality of what’s going on in the market.
You can’t buy that from anyone. You have to build it yourself. And the sooner the better.