The housing market in the United States has experienced a significant slowdown, leading to a drop in homeowner equity for the first time in over a decade. According to real estate data tracker CoreLogic, the average homeowner equity per borrower in the first quarter of 2023 was $274,070, a 1.9% decrease compared to the same quarter in the previous year. This decline in equity marks the first year-over-year drop since 2012 when the housing market was still recovering from the aftermath of the Great Recession. Let’s delve deeper into the factors contributing to this decline in homeowner equity and its impact on the real estate market.
The Drop in Homeowner Equity: The decline in homeowner equity between the first quarter of last year and the first three months of 2023 amounted to a combined loss of $108.4 billion, representing a 0.7% decrease overall. Homeowner equity is calculated by subtracting the outstanding mortgage amount from the current value of the property. Historically, homeowner equity tends to fluctuate alongside home prices.
The Housing Market Slowdown: The housing market, which had experienced remarkable growth in previous years, has encountered significant headwinds. Factors such as higher mortgage rates and a shortage of available homes have contributed to the market’s slowdown. The National Association of Realtors reported a 23.2% decline in sales of previously occupied U.S. homes in the 12 months leading up to April, marking nine consecutive months of annual sales declines exceeding 20%.
The downward trend in prices further contributed to the decrease in homeowner equity
Impact on Home Prices: The slowdown in the housing market has had a direct impact on home prices. While prices had been on an upward trajectory, they have now started to decline. The national median home price fell by 1.7% in April compared to the previous year, reaching $388,800. This downward trend in prices further contributed to the decrease in homeowner equity.
Regional Disparities: When examining homeowner equity on a state level, Washington, California, and Utah experienced the largest average declines. Homeowners in these states saw their equity decrease by $74,300, $59,600, and $37,700, respectively. Regional variations in market conditions and local economic factors can influence these disparities.
Positive Note: Small Increase in Equity: Although the overall trend indicates a decline in homeowner equity, there is a silver lining. Average homeowner equity experienced a slight increase of 0.9% in the first quarter when compared to the fourth quarter of the previous year. This increase can be attributed to accelerated monthly home price growth during early 2023.
Rise in Homeowners “Underwater”: Despite the relatively stable number of homeowners who owe more on their mortgage than their home is worth, there has been a 4% increase in the first quarter compared to the previous year. Around 1.2 million homes, accounting for approximately 2.1% of properties with a mortgage, remain in an “underwater” position.
The recent drop in homeowner equity in the United States, the first in over a decade, reflects the challenges faced by the housing market due to a combination of higher mortgage rates and limited inventory.
As home prices have started to decline, homeowners are witnessing a reduction in their equity. However, the slight increase in homeowner equity from the previous quarter offers a glimmer of hope. Continued monitoring of the housing market and its various factors will be crucial to understanding the long-term implications for homeowners and the broader real estate industry.