A majority of U.S. homeowners saw significant home equity gains in the first quarter, as home prices continued to rise in most markets.
That means fewer U.S. homeowners were in negative equity – or “underwater” on their mortgages.
However, as home price appreciation slows, the number of homes in negative equity is expected to rise again.
According to CoreLogic’s Home Equity Report, only about 4.1% homeowners with mortgaged properties, which represent about 63% of all homes, were underwater as of the end of the first quarter, a decrease of about 1% compared with the fourth quarter and a decrease of about 11% compared with the first quarter of 2018.
The number of underwater homes fell to 2.2 million, down from 2.5 million a year earlier, according to the firm’s data.
About 17,000 residential properties regained equity in the first quarter.
The average homeowner gained about $6,400 in home equity during the last year.
Collectively, U.S. homeowners with mortgages have seen their equity increase by 5.6% year over year, representing a gain of nearly $485.7 billion since the first quarter of 2018.
Some states saw much larger gains. In Nevada, homeowners gained an average of approximately $21,000, while in Idaho, homeowners gained an average of approximately $20,700, and in Wyoming, they gained an average of $20,300.
Despite these gains, about 2 million residential properties remained in negative equity as of the end of the first quarter.
As home price gains slow in the months to come, the number of homeowners in negative equity will likely begin to rise again.
In fact, that trend has already begun: According to CoreLogic’s data, the national aggregate value of negative equity as of the end of the first quarter was approximately $304.4 billion, up approximately $2.5 billion from $301.9 billion in the fourth quarter and up by approximately $18 billion from $286.4 billion compared with the first quarter of 2018.
“A moderation in home-price growth has reduced the gains in home-equity wealth and will likely slow the growth in home-improvement spending in the coming year,” says Frank Nothaft, chief economist for CoreLogic, in a statement. “For larger remodeling projects, homeowners often choose to cash-out some of their home equity through a first-lien refinance or placement of a second lien.”
“The country continues to experience record economic expansion as illustrated by these increases in home equity,” adds Frank Martell, president and CEO of CoreLogic. “We expect home equity to continue increasing nationally in 2019, albeit at a slower pace than in recent years.”