Uncategorized June 14, 2023

Dropping Equity Doesn’t Always Indicate Weak Equity


You might hear about a drop in property wealth in the news. It’s important to know that equity is closely linked to how much a home is worth. So, if the price of your home goes up, you can expect your equity to grow. And when home prices go down, so does wealth. Here’s how things have been going lately.

During the “unicorn” years, home prices went up quickly. That gave homeowners a big boost to their wealth. But those “unicorn” years couldn’t go on forever. At some point, the market had to slow down, and that’s what happened last autumn and winter.

In the second half of 2022, home prices went down a little bit, which hurt wealth. CoreLogic’s most recent report shows that homeowner wealth fell by 0.7% in the last year. But the stories that talk about this change don’t tell the whole story. Equity went down because home prices went down in the second half of last year. However, data shows that homeowners still have close to record amounts of equity.

The line below shows the total amount of property that can be used in this country going back to 2005. This helps show the point. Tappable equity is the amount of wealth that a renter can use before their loan-to-value (LTV) number reaches 80%. As the pink in the graph below shows, home prices went up quickly during the “unicorn” years, which gave people a big boost to their wealth.

But the most important thing to know is that even though there has been a small drop, the overall wealth of homeowners is still much higher than it was before the “unicorn” years.



The good news keeps coming. Recent reports on home prices show that the worst price drops are over, and prices have begun to go up again. The Chief Economist at CoreLogic, Selma Hepp, says:

“Changes in home prices are closely tied to changes in home wealth. So, the average amount of equity went down from a year ago, but it went up from the fourth quarter of 2022 to the first quarter of 2023 when monthly home price growth sped up.

The last part of that quote is very important and is the missing piece of the puzzle that the news doesn’t talk about. Experts say that home prices will go up at a more normal rate over the next year, which will add to the signs that things are getting better. Hepp says this in the same report:

“The average homeowner in the U.S. now has more than $274,000 in wealth. This is a big jump from before the pandemic when they only had $182,000. Also, homeowners in some parts of the country who bought a home last spring have no equity because prices have gone down. However, home prices are expected to go up over the next year, which should help many borrowers get some of that equity back.

Odeta Kushi, Deputy Chief Economist at First American, uses a slightly different number to back up the fact that homes have a lot of wealth right now:

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

This means that if you’ve owned your home for a few years, you probably still have a lot more wealth than you did before the “unicorn” years. And if you’ve only owned your home for a year or less, the fact that prices are expected to rise at a more normal rate over the next year should mean that your wealth is already going back up.

Bottom Line
When you look at titles, context is everything. Even though homeowner wealth has gone down a little since last year, it is still close to all-time highs. Talk to a trusted real estate agent so you can get the answers you need from an expert who is there to help you plan your move this year.