Media coverage might discuss a decrease in homeowner equity, which is directly linked to the value of homes. When home prices increase, it is likely that equity will also increase. Conversely, if home prices decline, equity will decrease as well. Let's examine recent events to better understand this phenomenon.

Home prices experienced significant growth during the period referred to as the 'unicorn' years, resulting in a substantial increase in homeowner equity. However, it was inevitable for the market to stabilize at some point, which occurred last autumn and winter.

During the latter part of 2022, a slight decline in home prices had an effect on homeowner equity. According to the latest CoreLogic report, there was a decrease of 0.7% in homeowner equity over the past year. However, it is important to note that the headlines covering this change do not provide a complete representation of the situation. The reality is, while home price depreciation during the second half of last year caused equity to drop, the data shows homeowners still have near-record amounts of equity. 

To emphasize this point, the following graph presents the cumulative tappable equity in the country from 2005 onwards. Tappable equity refers to the equity accessible to homeowners before reaching a maximum loan-to-value ratio (LTV) of 80%. The data clearly illustrates the substantial increase in equity during the 'unicorn' years, characterized by rapid appreciation in home prices (depicted by the pink section in the graph below).

But here’s what’s key to realize – even though there’s been a small dip, total homeowner equity is still much higher than it was before the ‘unicorn’ years.

Furthermore, there is additional positive news to consider. Recent reports on home prices indicate that the most significant declines in home prices are now in the past, and prices have begun to rise once more. Selma Hepp, Chief Economist at CoreLogic, provides insight into this matter by stating:

“Home equity trends closely follow home price changes. As a result, while the average amount of equity declined from a year ago, it increased from the fourth quarter of 2022, as monthly home prices growth accelerated in early 2023.” 

The final segment of that quotation holds particular significance and is the crucial aspect that is being overlooked in the news coverage. To underscore the encouraging trend that is already underway, experts predict that home prices will appreciate at a more moderate rate in the coming year. Hepp articulates this point in the same report, stating:

“The average U.S. homeowner now has more than $274,000 in equity – up significantly from $182,000 before the pandemic. Also, while homeowners in some areas of the country who bought a property last spring have no equity as a result of price losses, forecasted home price appreciation over the next year should help many borrowers regain some of that lost equity.”

And even though Odeta Kushi, Deputy Chief Economist at First American, references a slightly different number, Kushi further validates the fact that homeowners have a lot of equity right now: 

“Homeowners today have an average of $302,000 in equity in their homes.”

That means if you’ve owned your home for a few years, you likely still have way more equity than you did before the ‘unicorn’ years. And if you’ve owned your home for a year or less, the forecast for more typical price appreciation over the next year should mean your equity is already on the way back up.

Bottom Line

When analyzing headlines, context is essential. Despite a slight decrease in homeowner equity compared to the previous year, it is important to note that it remains close to record levels. To ensure you receive the information you need while making your plans for this year's move, let's connect and provide you with answers from an expert who is dedicated to assisting you.