Q4 2022 Sees Decrease In Annual Home Equity Gains

Mortgage News March 22, 2023

CoreLogic’s Homeowner Equity Report for Q4 2022 indicates that homeowners in the United States with mortgages saw equity rise by 7.3% YOY, resulting in a collective gain of $1 trillion, or an average of $14,300 per borrower, since Q4 2021. Although the average borrower earned approximately $14,300 in equity YoY, compared to the $63,100 gain seen in Q1 2022, this can be attributed to the slowing of U.S. home price growth in the final months of 2022.

The report also highlights that four western states and one district experienced annual home equity decreases, namely Idaho, Washington, California, Utah, and Washington, D.C., which is reflected in the CoreLogic Home Price Index’s latest findings. Meanwhile, Florida homeowners witnessed the highest annual equity growth in the fourth quarter, with an increase of $49,000. This can be attributed to the state’s significant year-over-year home price gains, which have been the largest in the country for the past year, according to HPI data, with prices up by 13.4% in January.

However, with 66,000 borrowers entering negative equity in Q4, the total number of underwater properties is approaching levels seen at the end of 2021, which was the lowest since the Great Recession. The new hotspots for equity declines are largely markets that have seen the most significant home price deceleration, including Boise, Idaho; the San Francisco Bay Area; cities in Utah; Phoenix, and Austin, Texas.

Negative equity, or underwater mortgages, applies to borrowers who owe more on their mortgages than their homes are currently worth. In Q4 2022, the total number of mortgaged homes in negative equity increased by 6% QOQ to 1.2 million homes or 2.1% of all mortgaged properties. On an annual basis, the total number of homes in negative equity declined by 2% to 1.2 million homes or 2.2% of all mortgaged properties.

Home equity is significantly affected by changes in home prices, with borrowers who have equity positions near the negative equity cutoff of +/- 5% most likely to move out of or into negative equity as prices change. Based on the Q4 2022 book of mortgages, if home prices increase by 5%, 145,000 homes would regain equity, while a decline of 5% would result in 215,000 properties falling underwater.

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