Slowing Home Price Appreciation Took a Bite Out of Homeowner Equity in Q4

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The share of properties that are considered “equity rich” – meaning the combined estimated amount of loan balances secured by a property is no more than half of its estimated market value – decreased in the fourth quarter to 46.1%, down from 47.4% in the third quarter and down from 48% in the fourth quarter of 2022, according to ATTOM.

At the same time, the the portion of mortgaged homes that were seriously underwater increased slightly in the last few months of 2023, from 2.5% to 2.6%. ATTOM defines seriously underwater mortgages as those with combined estimated balances of loans secured by a property that are at least 25% more than the property’s estimated market value.

“There are increasing signs suggesting that the extended period of prosperity in the U.S. housing market may be showing signs of easing,” says Rob Barber, CEO for ATTOM, in the firm’s latest U.S. Home Equity & Underwater Report. “It’s not as if there are big warning signs flashing. Similar things were happening early last year before the market surged in the spring. But the softening of equity follows a dip in resale profits last year for the first time in more than a decade as prices have stopped soaring through the roof. This year’s peak buying season will tell us a lot about whether things really have settled down long-term.”

The fourth quarter price decline capped off a year when the median home price grew annually by just 2%, marking the weakest growth since 2012 when the U.S. housing market was just starting to recover from the aftermath of the Great Recession that hit in the late 2000s.

Prices grew at only a modest pace in 2023 amid a mixed scenario of rising mortgage rates that offset upward pressure from a tight supply of homes for sale, strong employment and a rising investment market.

The potential for more uneven equity trends remains in place as the housing market heads into its annual peak spring and summer buying season, ATTOM says, but faces elevated prices that remain a financial stretch for wide swaths of the potential buying public.

The share of mortgages that were equity-rich decreased in 41 of the 50 U.S. states from the third quarter to the fourth quarter. Typically, the drops were by one to three percentage points. 

The biggest decreases came in the Midwest and West regions, led by Missouri, where the share of mortgaged homes considered equity-rich decreased from 41.9% in the third quarter to 37.3% in the fourth quarter. Minnesota saw its share drop from 39.5% to 35.9%, Michigan from 48.5% to 45.1%, Washington from 56.7% to 53.5%, and Utah from 56.8% to 53.7%.

Photo: Blogging Guide

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