US homeowners hold near-record equity even after price declines

THE share of US homes that are equity-rich dropped slightly in the first quarter of this year, but remained close to historic highs, according to new data from Attom.

Some 47.2 per cent of mortgaged homes were equity-rich – meaning that the borrower holds at least half the equity – in the January-March period, down from 48 per cent the previous quarter, a report published on Thursday (May 4) by the property data provider shows.

The drop comes as home prices decline across much of the country, after a decade-long boom that gathered pace during the initial years of the pandemic. While housing markets have shown some signs of stabilising recently, mortgage borrowing costs that have doubled since the start of last year will likely continue to curb demand and prices.

“Homeowners across the US continue to sit in a far better position than they were just a few years ago,” said Rob Barber, Attom’s chief executive officer. Even so, “the recent downturn in the housing market is chipping away at the bounty they reaped from a decade of price surges”.

Higher levels of equity help to shield homeowners from foreclosure risks, and could also protect the economy from the impact of a more severe housing downturn like the one that led to the 2008 crash. The Attom report shows that some 238,000 homeowners faced possible foreclosure in the first quarter of 2023, less than 0.5 per cent of outstanding mortgages – and even among that at-risk group, more than 90 per cent had at least some equity built up in their homes.

The biggest drops in equity positions last quarter came in the West. On a state level, the largest decline in the share of equity-rich homes came in Arizona, followed by Nevada and Idaho. The highest share of homes classified as “seriously underwater” – meaning the borrower owes at least 25 per cent more than the property’s market value – was in Baton Rouge, Louisiana at 10.6 per cent, followed by New Orleans.

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Out of the five states where the equity-rich share of homes increased last quarter, four are in the South – a region that’s been one of the big winners from Covid-era population shifts. In South Carolina, for example, the figure rose to 49.7 per cent, from 48.9 per cent at the end of 2022. Florida ranks second in the nation with a rate of 61 per cent, after overtaking California last year. Before the pandemic, California was some 15 percentage points ahead of the Sunshine State.  

All of the 50 zip codes with the highest share of equity-rich homes were in California, Florida (four of them in Collier County), Massachusetts, New York and Texas. Top of the list was a district in Edgartown, Massachusetts, a wealthy enclave on Martha’s Vineyard, where 86.9 per cent of mortgaged properties were equity-rich. BLOOMBERG