Homeowners enjoyed the largest year-over-year home equity gain in six years during the third quarter.
Equity is the difference between what you owe on your mortgage and what your home is currently worth. If you owe $150k on your mortgage loan and your home is worth $200k, you have $50k worth of equity in your home. As you pay down your mortgage, the amount of equity in your home will rise.
Americans with mortgages (roughly 63% of all properties) saw their home equity increase by an average of $17,000 between July and September 2020 as compared to the same quarter a year ago, according to a quarterly report from mortgage data and analytics firm CoreLogic.
Home equity for those homeowners rose by a total of $1 trillion over the year, with the average home equity in the U.S. sitting at $194,000 by the end of September.
One of the biggest drivers of home equity is price growth over the last several months. There has been a huge shortage of homes and the Federal Reserve dropped mortgage interest rates, which led to an acceleration of home prices.
Mortgage Rates Are At An All Time Low
In a pandemic when millions of Americans have lost their jobs, the equity increases were largely surprising and have favored certain markets over others.
The single largest effect of the pandemic on the housing market is the opposite of what was expected in April. Due to stay-at-home orders, people have been driven to invest in their single-family homes to make their living spaces more functional to fit the new normal, especially in suburban areas.
States such as Washington, California and Idaho were among the top five states with the largest year-over-year equity gains. Homeowners in Washington saw a $36,000 increase in home equity wealth, while for California and Idaho those gains were $34,000 and $29,000, respectively.
California expats who were in high cost markets are now looking for more space and with flexibility in technology jobs to work remotely. They’re taking this opportunity to lock in low mortgage rates and move to areas like Boise, Idaho which has a strong job market.
An earlier study by Mphasis Digital Risk, a mortgage underwriting firm, found that 4 in 10 Americans wanted to buy a home during the pandemic, with more than half citing office space as a top desire and 45% wanting additional space for their children.
The increase in home equity should likely continue into the new year as rates remain at or near record lows.
Some expect home equity to increase, in some locations, by as much as 50% in 2021 year over year. That would result in $1.5 trillion in home equity and a 10% year-over-year increase in home price appreciation.
Rental Property Values Are Also On the Rise
The National Home Rental Council’s rental market index reached a score of 74.4 out of 100 in the third quarter, the second straight record high. A score above 50 signals a strong market, based on leasing activity, household occupancy, and expected demand.
A lot of tenants have moved into single-family rentals in the suburbs, while in the past, equal demand has been shared by single-family and multifamily properties. More than 50% of the new single-family home rentals were from those who moved out of urban residential environments during the pandemic.
If you are the owner of a single-family property, you may want to hold onto them and continue to accumulate equity amid renter demand.
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