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CoreLogic Econ


U.S. Economic Outlook: January 2016

Equity and Mortgage Debt: The Yin and Yang of Property Ownership

Frank Nothaft    |    Mortgage Performance, Videos


It’s common for a homebuyer to use both a down payment and a mortgage loan to acquire their home, in other words, a combination of equity and debt. As home prices rise and loans amortize, equity grows and debt shrinks. But if home prices fall, equity can be wiped out, leaving an owner with debt that exceeds the home’s value.

Fortunately, home prices in most of the nation have risen briskly, up about 5.5 percent in the national CoreLogic Home Price Index through the year ending September 2015. The latest report from CoreLogic on home equity found that if you add up the equity of all the homeowners with a mortgage in the U.S., their equity grew by $741 billion over the year through September 2015.1 Unfortunately, there still remain about 4.1 million homeowners who have negative equity—also referred to as ‘underwater’—representing 8 percent of owners with a mortgage. This has fallen since 2010 when the number “underwater” share was nearly three times higher (Exhibit 1).

Big drop in owners with negative equity

Exhibit 1: Big Drop in Owners with Negative Equity

These figures exclude homeowners who own their homes free and clear of mortgage debt, and they represent 36 percent of all owners.2 Adding them in, the increase in home equity on owner-occupied homes was even greater, about $1.3 trillion over the same 12-month period, and $6 trillion since mid-2011 (Exhibit 2). Not only did home equity rise, but single-family debt outstanding also rose over the past year, but only by $80 billion. In fact, 2015 marked the first time in a decade that both home equity and mortgage debt rose in the same year.

homeeowners equity up $1.3 trillion last year

During a weak housing market, debt can fall because of foreclosures, short sales, and lower utilization of mortgage credit. In a growing market, mortgage debt can rise for at least three reasons. First, debt may rise if more homebuyers use a mortgage loan to finance their home purchase; through the first three quarters of 2015, 66 percent of buyers used a mortgage, the highest share since 2008, according to CoreLogic public records analysis.3 Second, debt outstanding grows if existing owners cash-out equity through a refinance or placing a second mortgage; Freddie Mac reported that equity cashed-out through the third quarter of 2015 was the most since 2009.4 Third, an increase in the single-family housing stock can increase aggregate equity and debt simultaneously.

In fact, in a growing market we should expect to see both equity and debt rise over time. We can compare the lending recovery across property types by looking at the rise or fall of debt over time (Exhibit 3). When doing so we see that, across major property segments, multifamily debt began to recover first from the Great Recession, turning around in 2011. Nonresidential mortgage debt began to expand in 2013. Single-family mortgage debt was last to grow, only beginning a slow rise in 2015.

The growth in home equity and nascent recovery in single-family mortgage debt underscore that the single-family market continues to get healthier but has not fully recovered. If home prices rise 5 percent uniformly across the nation in the coming year, we expect to see the number of ‘underwater’ homeowners fall by another 1.1 million in the coming year, as appreciation lifts them up from being underwater. This will allow their equity to grow while their debt pays down.

[1] See
[2] U.S. Census Bureau, 2013 American Housing Survey for the United States, Table C-14A-OO.
[3] See
[4] See

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