Growing home equity is helping homeowners build financial buffers
High mortgage interest rates continue to challenge the housing market. However, ongoing home price appreciation and the resulting increases in home equity is providing a financial buffer and helping homeowners pay for unexpected increases in homeownership costs without falling behind on their mortgage payments.
Let’s look at where the current landscape stands right now:
- Homeowners have almost $129,000 more in home equity than at the onset of the pandemic. Persistent home price growth has continued to fuel home equity gains for existing homeowners who now average about $315,000 in equity as of Q2 2024. Some homeowners are facing higher homeowners’ insurance costs and taxes, and they have had to tap into their equity to prevent falling behind on their mortgages. The substantial accumulation of home equity for existing homeowners has served as an important financial buffer.
- Home equity gains over the last year were the strongest in the Northeast, where annual home price growth led the country in the second quarter of 2024. Maine led the charge for largest average national equity gain ($57,500), followed by California ($55,300) and New Jersey ($52,600). On the other hand, Texas (-$2,600), Oklahoma (-$7,700), and North Dakota (-$8,400) are the three states that posted annual equity losses.
- Home price appreciation also helped reduce the number of homeowners in negative equity. Currently, 1.7% of borrowers with a mortgage have negative equity. While the overall share of borrowers in negative equity continued to decline in Q2 2024, a few markets with weak or declining home prices saw a slight increase in the share of borrowers in- or near- negative equity (with less than 5% of equity), including the Texas cities of Austin, McAllen, Killeen, and San Antonio.
- The share of mortgages in delinquency dropped back to 2.8% in July after inching up in June. The delinquency rate was a bit higher than in July 2023 (2.7%), and while the share of mortgages six months or more past due decreased, those in earlier stages of delinquency increased. The foreclosure rate held steady at 0.2%, where it has been since May of this year.
- Non-qualified mortgage (non-QM) home loans share is growing. The non-QM share of total mortgage counts declined during the pandemic, hitting a low of less than 3% in 2020. However, by 2022, the non-QM market nearly doubled, representing about 5% of the market through the second quarter of 2024.
- Home equity lending activity in 2024 grew to the highest level since the first half of 2008. In the first two quarters of 2024, lenders originated more than 333,000 new home equity loans totaling about $23.6 billion. Year over year in 2024, home equity counts increased by 40% while home equity loan amounts increased by 69%.
- Similarly, home equity lines of credit (HELOCs) activity has been growing since 2007. However, after reaching a new peak in 2022, the activity dropped in 2023 and 2024. During the first two quarters of 2024, lenders originated about 671,000 new HELOCs totaling almost $105 billion. Year over year in 2024, HELOC counts decreased by 2% while HELOC loan amounts decreased by 4%.
- The active inventory of existing homes available for sale continued to climb, growing 14% year over year in August. In contrast, the number of new weekly listings slowed in August, down 1% year over year. While the slowdown in new listings follows typical seasonal declines, the pickup in new listings early in 2024 offered some hope for better supply conditions. Nevertheless, with a rapid decline in mortgage rates, potential sellers may be more inclined to list their properties soon.
- Lower mortgage rates are refueling homebuying demand, with pending home sales picking up pace in August. Pending sales are now 12% higher than in 2023. However, since May, monthly sales are lower on a year-over-year basis as the April surge in mortgage rates cooled housing market demand across the U.S. Nevertheless, with pending sales consistently trending above 2023 levels for the past four weeks, closed sales are likely to finally break last year’s lows.
- Lower mortgage rates are also fueling refinance activity among loans with rates higher than the prevailing rate. Since the 2022 rate surge, 2.4 million loans were originated with a mortgage rate above 6.5%, and 3.5 million loans were originated with a rate over 6%. If loans with earlier origination years are added to the equation, there are a total of 4.8 million loans with rates over 6% and 3.3 million with rates over 6.5%.
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CoreLogic’s Office of the Chief Economist