KC Homeowners: A Drop in Equity Doesn’t Mean Low Equity


There is a lot of current media coverage talking about a drop in homeowner equity. It’s important to understand that equity is closely tied to home values. When home prices appreciate, you can expect equity to increase. Similarly, when home prices decline, equity does as well. Let’s look at how this has played out in recent years.

Home prices rose quickly during the ‘unicorn’ years, giving homeowners a considerable equity boost. This boost wasn’t sustainable long-term because the housing market had to moderate at some point. This moderation is what we witnessed last fall and winter. 

Equity was affected as home prices dropped slightly in the back half of 2022. The most recent CoreLogic report states a 0.7% dip in homeowner equity over the last year. However, the headlines reporting on that shift aren’t painting the whole picture. The reality is this: while home price depreciation during the second half of last year caused equity to drop, the data shows homeowners still have near-record amounts of equity

The graph below helps demonstrate this point. It compares the total amount of tappable equity in this country going back to 2005. Tappable equity is the amount of equity available for homeowners to access before reaching a maximum 80% loan-to-value ratio (LTV). The data shows a substantial equity boost during the ‘unicorn’ years as home prices quickly appreciated (see the pink in the graph below).

Here’s the main takeaway: Despite a slight dip, total homeowner equity is still much higher than before the ‘unicorn’ years.

There’s even more good news! Recent home price reports show the worst home price drops are behind us. Prices have started to rise again. As Selma Hepp, Chief Economist at CoreLogic, explains:

“Home equity trends closely follow home price changes. As a result, while the average amount of equity declined from a year ago, it increased from the fourth quarter of 2022, as monthly home prices growth accelerated in early 2023.” 

Pay attention to the last part of that quote. This is the piece of the puzzle the news is currently leaving out. Experts further emphasize the positive turn we’re already seeing, stating that home prices are predicted to appreciate at a more normal rate over the next year. In the same report, Hepp puts it this way:

The average U.S. homeowner now has more than $274,000 in equity – up significantly from $182,000 before the pandemic. Also, while homeowners in some areas of the country who bought a property last spring have no equity as a result of price losses, forecasted home price appreciation over the next year should help many borrowers regain some of that lost equity.”

Odeta Kushi, Deputy Chief Economist at First American, references a slightly different number. However, Kushi further validates the fact that homeowners have a significant amount of equity right now: 

“Homeowners today have an average of $302,000 in equity in their homes.”

Have you been a homeowner for several years? You likely have way more equity than before the ‘unicorn’ years. If you’ve owned your home for a year or less, the prediction for more standard price appreciation over the next year means your equity is likely already on the rise.

Bottom Line

When looking at headlines, context is everything. While homeowner equity decreased slightly from last year, it’s still near all-time highs. You deserve clear housing market data from real estate experts. The Just Say Home team can provide the clarity and direction you need to move forward in your next move confidently!

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