"Tracking Three Straight Quarters of Declining Home Equity in the U.S."

The U.S. has witnessed a decline in home equity for three consecutive quarters. This trend reflects broader economic challenges and market fluctuations, affecting homeowners and potential buyers. The ongoing situation raises concerns about the stability of the housing market and its implications for the economy

According to ATTOM's recently published U.S. Home Equity & Underwater Report for the first quarter of 2024, 45.8% of residential properties with mortgages in the United States were classified as equity-rich during this period. This indicates that the total loan balances secured by these properties were at most 50% of their estimated market values.

The percentage of mortgaged homes considered equity-rich in the first quarter of 2024 decreased to 45.8% from 46.1% in the previous quarter, continuing a downward trend for the third consecutive quarter. This latest figure also represents a decline from 47.2% in the first quarter of 2023, reaching a two-year low.

Simultaneously, ATTOM's report highlights a slight increase in the proportion of U.S. mortgaged homes considered seriously underwater early in 2024, rising from 2.6% to 2.7% of all residential mortgages. Seriously underwater mortgages are defined as those where the combined loan balances exceed the property's market value by at least 25%.

Rob Barber, CEO of ATTOM, commented on the situation: "Homeowner balance sheets have significantly benefited from recent boom times, leveraging elevated equity for various expenditures, from home improvements to business ventures. However, these gains are gradually diminishing as signs emerge that the market is cooling down. It’s premature to make sweeping predictions about market trends, particularly after the typically slower fall and winter seasons. The upcoming spring buying season will be crucial in determining whether we are seeing the start of a new long-term trend in the market."

The recent declines in home equity coincided with a 4% drop in the national median value of single-family homes and condos over the winter, with only a modest 3% year-over-year increase observed during the first quarter. Equity often mirrors these fluctuations in property values, as it is calculated based on the ratio of mortgage debt to the property's estimated value—even as homeowners continue paying down their mortgages.

As the market enters the spring buying season, it confronts a complex set of factors that could either rejuvenate it or keep it level. These factors include a constrained housing supply and a robust investment market, which may support price levels. However, the resurgence of mortgage interest rates, now exceeding 7% for 30-year loans, combined with persistently high home prices, continues to pose affordability challenges for average earners.

Equity-rich share of mortgages declines quarterly in a majority of U.S.

From the fourth quarter of 2023 to the first quarter of 2024, the percentage of equity-rich mortgages declined in 26 out of 50 U.S. states, typically by less than two percentage points. Over the year, from the first quarter of 2023 to the same period in 2024, 25 states saw a decrease in equity-rich levels.

Significant quarterly reductions were most notable in the Southern regions, with Kentucky experiencing a drop from 35.4% to 28.7% in homes considered equity-rich. South Carolina, Georgia, Delaware, and Indiana also saw notable declines, with percentages dropping to 40%, 43.7%, 37.2%, and 40.9%, respectively.

Conversely, in 23 states, the proportion of equity-rich mortgages increased from the last quarter of 2023 to the first quarter of 2024, generally by less than one percentage point. The most substantial gains occurred in the Midwest and West, highlighted by increases in South Dakota (from 49.8% to 51.5%), Hawaii (from 55% to 56.5%), Montana (from 57.3% to 58.7%), North Dakota (from 30.4% to 31.5%), and Mississippi (from 37.3% to 38.3%).

Seriously underwater mortgage levels tick upward in most states

The proportion of mortgaged homes classified as seriously underwater in the U.S. experienced a slight increase, shifting from one in 38 in the fourth quarter of the previous year to one in 37 in the first quarter of this year. This rise occurred in 37 states, generally by less than one percentage point.

The largest increases were predominantly in the South, a region already grappling with some of the highest rates of seriously underwater mortgages in the nation. Kentucky saw a significant uptick, with the percentage of mortgaged homes seriously underwater rising from 6.3% to 8.3%. Other notable increases were in West Virginia (from 4.4% to 5.4%), Oklahoma (from 5.5% to 6.1%), Arkansas (from 5.2% to 5.7%), and Delaware (from 2.3% to 2.7%).

Conversely, the states where the percentage of seriously underwater homes declined most significantly from the fourth quarter of 2023 to the first quarter of 2024 included Missouri (decreasing from 5.6% to 4.5%), Mississippi (from 8% to 7.1%), Arizona (from 1.9% to 1.6%), Hawaii (from 1.7% to 1.6%), and Tennessee (from 2.9% to 2.8%).

Upscale markets in Northeast and West continue to have highest levels of equity-rich homeowners

During the first quarter of 2024, nine out of the ten states with the highest levels of equity-rich mortgaged properties in the U.S. were predominantly located in the Northeast and West regions. Leading these statistics were Vermont, where an impressive 82% of mortgaged homes were equity-rich, followed by Maine (59.2%), Montana (58.7%), California (58.6%), and New Hampshire (57%).

Conversely, nine out of the ten states with the lowest percentages of equity-rich properties during the same period were primarily in the Midwest or South. Louisiana had the smallest proportion, with only 20.1% of mortgaged homes being equity-rich. This was followed by Oklahoma (28.1%), Illinois (28.3%), Kentucky (28.7%), and Alaska (29.5%).

In an analysis of 107 metropolitan statistical areas across the nation—each with a population of at least 500,000—areas with median home values exceeding $400,000 prominently featured on the list of locations with the highest portion of equity-rich mortgaged properties. This highlights the correlation between higher property values and increased equity richness in these upscale markets.

During the first quarter of 2024, San Jose, CA, led the list of U.S. metropolitan areas with the highest proportion of equity-rich mortgaged properties at 69.3%, coinciding with a median home price of $1.4 million. Other notable cities included Miami, FL (64.5% equity-rich, median price $440,000), Los Angeles, CA (64.3%, median price $900,000), San Diego, CA (64.2%, median price $835,000), and Portland, ME (63.2%, median price $470,000).

In the Midwest, Grand Rapids, MI, continued to lead with 53% of mortgaged homes being equity-rich and a median home price of $287,000.

Conversely, the metro areas with the lowest percentages of equity-rich properties were predominantly in markets with lower housing prices. The lowest equity levels were recorded in Baton Rouge, LA (12.7% equity-rich, median home price $212,533), Little Rock, AR (24%, median price $197,000), Virginia Beach, VA (26.2%, median price $305,000), and Tulsa, OK (27.6%, median price $215,000).

From the fourth quarter of 2023 to the first quarter of 2024, the proportion of mortgaged homes considered equity-rich declined in 63 of the 107 metro areas analyzed (59%), with a year-over-year decrease observed in 70% of these areas during the same period. This data illustrates significant shifts in the distribution of home equity across various U.S. markets, reflecting broader economic trends and local housing market dynamics.

Top equity-rich counties remain in Midwest, Northeast and West

In the first quarter of 2024, an analysis of 1,743 counties, each with at least 2,500 homes with mortgages, revealed that the top 25 equity-rich locations were situated in the Midwest, Northeast, or West regions, with none in the South.

Leading the list of counties with the highest proportion of equity-rich properties was Chittenden County (Burlington), VT, where an impressive 88.6% of homes were equity-rich. This was closely followed by Benzie County (Beulah), MI at 86.6%, Addison County (Middlebury), VT at 86.3%, Washington County (Montpelier), VT at 85.3%, and Manistee County, MI at 85.2%.

Among counties with a population exceeding 500,000, those with the highest levels of equity-rich properties included Santa Clara County (San Jose), CA at 70.2%, San Mateo County, CA at 69.8%, Orange County, CA (outside Los Angeles) at 68.1%, and both Palm Beach County (West Palm Beach), FL and Miami-Dade County, FL each at 67.5%. These figures highlight significant geographic disparities in housing equity across the United States, with particular regions exhibiting notably high levels of homeowner equity.

In the first quarter of 2024, twenty-three of the twenty-five counties with the lowest percentage of equity-rich homes were located in the South. The counties with the smallest shares of equity-rich homes included Campbell County (Gillette), WY, where only 3.9% of homes were equity-rich, followed by Vernon Parish (Leesville), LA at 7.9%, Ascension Parish, LA (outside Baton Rouge) at 8%, Jefferson County (Mount Vernon), IL at 8.2%, and Marshall County, WV (outside Pittsburgh, PA) at 8.9%.

For counties with populations exceeding 500,000, those with the smallest proportions of equity-rich homes were Baltimore City/County, MD at 25.4% equity-rich; Prince George's County, MD (outside Washington, DC) at 26.2%; Cook County (Chicago), IL at 26.5%; Jefferson County (Louisville), KY at 26.7%; and Anne Arundel County (Annapolis), MD at 27.9%. This data indicates a regional concentration of lower equity levels, particularly in the South and some urban centers, reflecting varying economic conditions and housing market dynamics.

At least half of all mortgaged properties considered equity-rich in more than one-third of zip codes

In the first quarter of 2024, among 9,101 U.S. zip codes with at least 2,000 residential properties holding mortgages, 3,334 zip codes, or 37%, had at least half of their mortgaged properties classified as equity-rich.

Significant concentrations of equity-rich properties were found in California and Florida, with 32 of the top 50 zip codes located in these states. The highest equity-rich percentages were seen in zip code 83340 in Ketchum, ID, where 86.4% of mortgaged properties were equity-rich, followed by 49855 in Marquette, MI at 84.9%, 92657 in Newport Coast, CA at 84.8%, 93108 in Santa Barbara, CA at 84.6%, and 94024 in Los Altos, CA at 84.2%. This data underscores the substantial regional variations in home equity across the United States, particularly highlighting the strong real estate markets in California and Florida.

Midwest and South have largest shares of seriously underwater mortgages

In the first quarter of 2024, the Midwest and South regions dominated the list of states with the highest percentages of mortgages considered seriously underwater. Louisiana led with 11.3% of its mortgages falling into this category, followed by Wyoming at 8.8%, Kentucky at 8.3%, Mississippi at 7.1%, and Oklahoma at 6.1%.

Conversely, the states with the lowest shares of seriously underwater mortgages were primarily in the Northeast and California. Vermont had the smallest percentage at only 0.8%, with Rhode Island and New Hampshire each at 1.1%. California followed closely at 1.2%, and Massachusetts at 1.3%.

Among the 107 metropolitan statistical areas with a population exceeding 500,000, those with the largest proportions of seriously underwater mortgages were Baton Rouge, LA at 13.4%, New Orleans, LA at 7.3%, Jackson, MS at 6.5%, Little Rock, AR at 6%, and Syracuse, NY at 5.6%. This data indicates a notable concentration of underwater mortgages in certain areas, reflecting regional economic conditions and housing market challenges.

More than 20 percent of residential mortgages seriously underwater in just 40 zip codes

In the first quarter of 2024, among the 9,101 U.S. zip codes with at least 2,000 residential properties with mortgages, only 40 locations had more than 20% of their mortgaged properties classified as seriously underwater.

The zip codes with the highest percentages of seriously underwater mortgages included 82716 in Gillette, WY, where an astonishing 87% of mortgaged homes were seriously underwater, followed by 82718, also in Gillette, WY, with 79.2%. Other areas facing significant challenges were 62864 in Mount Vernon, IL (55%), 42728 in Columbia, KY (49.3%), and 42445 in Princeton, KY (42.2%). This data highlights specific geographic pockets where homeowners are facing considerable financial strain in terms of property values versus mortgage debt.

Source: worldpropertyjournal