Home Values, Home Equity Continue to Rise
Written By: Joel Palmer, Op-Ed Writer
Industry analysis released this past week by the Federal Housing Finance Agency (FHFA) showed that home prices continue to rise in much of the country.
FHFA also released figures showing homeowners equity remains high, which is at least in part the result of the increase in home prices.
Or put another way, it’s a good time to already have a home you bought years ago, but not such a good time to try to buy one.
FHFA’s latest quarterly House Price Index showed house prices in the U.S, rose 3 percent between the second quarters of 2022 and 2023, while they were up 1.7 percent compared with the first quarter of 2023.
“U.S. house prices appreciated at a slightly higher rate in the second quarter amid low inventory,” said Dr. Anju Vajja, Principal Associate Director in FHFA’s Division of Research and Statistics. “While prices in a number of western states continued to decline year-over-year, house prices rose in all states quarter-over-quarter.”
Other findings in the latest report include:
The U.S. housing market is on a streak of positive annual appreciation each quarter since the start of 2012.
On a year-over-year basis, house prices rose in 42 states in the second quarter of 2023.
Maine, Connecticut, New Hampshire, Arkansas and New Jersey experienced the highest rates of price increases.
The lowest performing states, those with the highest annual rate of overall home depreciation, were Nevada, District of Columbia, Utah, Idaho and Washington.
House prices rose in 74 of the top 100 largest metropolitan areas over the last four quarters. The annual price increase was greatest in Camden, NJ at 10.6 percent. The metropolitan area that experienced the greatest price decline was San Francisco-San Mateo-Redwood City, CA at -12.2 percent.
Rising home values are boosting home equity nationally.
FHFA analysis showed that around 97 percent of outstanding first-lien, closed-end residential mortgages in the United States had home equity above 10 percent. Of properties in which Fannie Mae and Freddie Mac acquired the mortgages, 98.5 percent had home equity above 10 percent.
Only 0.2 percent of these mortgages have negative equity, the lowest level in the past 10 years.
Nationally, the percentage of mortgages with equity of more than or equal to 30 percent has increased steadily from 46.1 percent in the first quarter of 2013 to a 10-year high of 83.3 percent in the first quarter of 2023.
FHFA noted a slight concern in the number of homeowners who have 10 percent or less equity, since a 10 percent drop in home values would put these homeowners under water on their loans.
According to FHFA, the percentage of these mortgages has started to increase nationally, from 2.2 percent in the second quarter of 2022 to 3.1 percent in the first quarter of this year. This implies that a nationwide house price decline of 10 percent would result in over 1.5 million homeowners with negative equity.
The number of low equity mortgages, however, remains historically low, the agency noted.
This trend may partially explain the drop-off this year in home equity lines of credit (HELOCs).
CoreLogic reported last month that HELOC loan counts are down 26 percent and loan amounts are off 32 percent on a year-over-year basis in 2023. This is not surprising for a number of reasons.
First, 2022 was the best year for HELOC activity since 2007. In fact, CoreLogic noted that the HELOC market is keeping pace with its pre-pandemic level. Also, demand for HELOCs is typically linked to current interest rates, which have been steadily rising over the past few years.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
