Home values have risen for 124 consecutive months — more than 10 years — and the gains have accelerated in recent years. That, and keeping up with monthly mortgage payments, has put a lot of wealth on paper for homeowners.
A record 48.1% of homeowners with a mortgage nationwide were equity-rich in the second quarter of 2022 — owing the lender less than 50% of what they could sell their home for. That is up from 34.4% a year earlier.
Home equity at the end of the second quarter was a record $27 trillion.
In the D.C. metro area, home data tracking firm Attom Data reports the equity-rich share of homeowners with a mortgage is 34.1%. That’s up from 26.4% a year earlier, but well below the national average.
Part of the reason may be the D.C. area’s transient nature.
“Homeowners may not have been in place long enough to build up that kind of equity,” said Rick Sharga, executive vice president of market intelligence at Attom. “And that is particularly true in markets like D.C. where home prices have been accelerating rapidly and we’ve seen a lot of sales.”
Abuse of home equity in the early and mid-2000s contributed to the housing market’s meltdown by 2008 and 2009, but home equity is peace of mind for homeowners who tap it only when necessary.
Tapping home equity to pay for college education can be less expensive than a traditional student loan. It is good for home improvement costs. It puts sometimes hundreds of thousands of dollars at a homeowner’s disposal.
And it is also good to have for homeowners who suddenly find themselves in financial distress, particularly relevant with more discussion of a possible recession on the horizon.
“That equity gives you the opportunity to finance your way out of some kind of short-term financial distress. It also gives you the opportunity to sell your home at a profit rather than lose it to a foreclosure auction,” Sharga said.
Nationwide, just 2.9% of mortgaged homeowners are underwater, with a loan balance that is at least 25% more than the property could be sold for. In the D.C. metro area, it is 1.9%.
Some underwater mortgages have been very recently taken out, but a large share of homeowners currently underwater have owned their home for a long time, were dinged a decade or so ago and are still not right-side up.
“Some of the borrowers who are underwater today are people who bought properties back during the run-up that led to the Great Recession and the housing market meltdown. So they had low down payments or no down payment loans on properties that we overvalued, and they have not caught up yet quite caught up to full market value versus what’s on their mortgage,” Sharga said.
Austin, Texas, and San Jose, California, have the highest share of equity-rich homeowners, at 76.5% and 75.1%. Baton Rouge, Louisiana, and Wichita, Kansas, have the smallest share, at 19.6% and 22.1%.