Homeowner Equity: Understanding the Whole Picture
You may have come across media coverage discussing a drop in homeowner equity. It's essential to understand that equity is closely tied to home values. When home prices appreciate, equity tends to grow, and when home prices decline, equity follows suit. Let's take a closer look at recent developments.
During the 'unicorn' years, home prices experienced a rapid rise, significantly boosting homeowners' equity. However, those exceptional years couldn't last indefinitely. The market eventually had to stabilize, which is what occurred last fall and winter.
As home prices slightly declined in the latter half of 2022, homeowner equity was affected. According to the latest report from CoreLogic, there was a 0.7% dip in homeowner equity over the past year. However, it's important to note that the headlines highlighting this change do not present the complete picture. Despite the dip in equity due to the depreciation in home prices, homeowners still possess near-record levels of equity.
Furthermore, recent reports indicate that the worst home price declines are behind us, and prices have started to increase once again. Selma Hepp, Chief Economist at CoreLogic, explains that home equity trends closely follow home price changes. As a result, although the average amount of equity declined from a year ago, it increased from the fourth quarter of 2022, with accelerated monthly home price growth in early 2023.
It's crucial to recognize this positive turn we're witnessing. Experts predict that home prices will appreciate at a more normal rate in the coming year. Hepp emphasizes that the average U.S. homeowner now has more than $274,000 in equity, a significant increase from $182,000 before the pandemic. Additionally, projected home price appreciation over the next year should help many borrowers regain some of the lost equity experienced by homeowners in certain areas who purchased properties last spring.
Odeta Kushi, Deputy Chief Economist at First American, also confirms the substantial amount of equity homeowners currently possess, albeit citing a slightly different figure of $302,000 on average.
This means that if you've owned your home for a few years, chances are you still have considerably more equity than you did before the 'unicorn' years. Even if you've owned your home for a year or less, the forecast for more typical price appreciation in the next year suggests that your equity is already on the rise.
In conclusion, it's crucial to consider context when analyzing headlines. Although homeowner equity experienced a slight drop from the previous year, it remains close to all-time highs. If you're planning a move this year, connect with an expert who can provide you with the answers you need as you navigate the real estate market.
