Number of Properties in Negative Equity Jumped in Q4

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The number of U.S. residential properties in negative equity increased 1.6% to 2.2 million homes or 4.2% of all mortgaged properties in the fourth quarter, according to CoreLogic’s most recent Home Equity Report.

The number of homeowners with negative equity increased by 35,000 compared with the previous quarter. It was the first quarterly increase since the fourth quarter of 2015. 

The increase was the result of slowing home price appreciation. In many areas of the country, home prices have still not fully recovered from their pre-crisis peaks. That means there are markets scattered throughout the U.S. where a high percentage of homeowners are still underwater on their mortgages – meaning the amount borrowed exceeds the value of the home. When home price appreciation begins to decelerate, these markets are the first to be impacted.

As of the end of the fourth quarter, the national aggregate value of negative equity was approximately $300.3 billion, an increase of approximately $17.4 billion compared with $282.9 billion in the third quarter and an increase of approximately $14.4 billion compared with $285.9 billion in the fourth quarter of 2017.

Still, rising home prices have helped lift many residential properties out of negative equity during the past 10 years. CoreLogic estimates that negative equity peaked at 26% of mortgaged residential properties in the fourth quarter of 2009.

And during the past year, the number of properties in negative equity decreased dramatically. 

According to CoreLogic’s data, the number of mortgaged properties in negative equity fell by 14%, or by 351,000, in 2018 to 2.6 million homes or 4.9% of all mortgaged properties.

U.S. homeowners with mortgages (which account for roughly 63% of all properties) saw their collective equity increase by 8.1%, year over year, representing a gain of nearly $678.4 billion since the fourth quarter of 2017.

For the average homeowner, that’s a gain of $9,700.

While home equity grew in almost every state in the nation, western states experienced the most significant annual increases, CoreLogic notes.

Nevada homeowners gained an average of approximately $29,400 in home equity, while Hawaii homeowners gained an average of approximately $26,900 and Idaho homeowners gained an average of $24,700.

California homeowners experienced the fourth-highest growth with an average increase of approximately $19,600 in home equity.

“Our forecast for the CoreLogic Home Price Index predicts there will be a a 4.5 percent increase in our national index from December 2018 to the end of 2019,” says Frank Nothaft, chief economist for CoreLogic, in a statement. “If all homes experience this gain, this would lift about 350,000 homeowners from being underwater and restore positive equity.”

“As home prices rise, significantly more people are choosing to remodel, repair or upgrade their existing homes,” adds Frank Martell, president and CEO of CoreLogic. “The increase in home equity over the past several years provides homeowners with the means to finance home remodels and repairs.

“With rates still ultra-low by historical standards, home-equity loans provide a low-cost method to finance home-improvement spending. These expenditures are expected to rise five percent in 2019,” Martell adds.

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