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Prices may be dropping, but homes still have loads of equity

As prices began to fall, home equity held strong. Even the most distressed properties held positive equity in the third quarter of 2022, according to a new report from Attom.

As happened during the Great Recession, home prices today are beginning to fall after experiencing an extended period of red-hot price gains.

But unlike those days, most homeowners have a trump card in hand: They’re still swimming in positive equity.

In fact, nearly half of U.S. residential properties with a mortgage in the third quarter of 2022 had equity that was greater than the remaining amount owed on their respective loans, according to a report Wednesday from Attom.

The real estate data provider found that nearly 49 percent of properties were “equity rich” by this standard last quarter. That represents a slight uptick from the previous quarter and a significantly higher share than in the same period in 2021 when 40 percent of homes were considered equity rich.

The amount of equity built up since the Great Recession — including a significant rise over the past three years alone — ensures a softer landing for many homeowners should their household incomes take a hit.

“If these borrowers can’t leverage the equity to refinance their current mortgage, they at least have the option of selling the property rather than losing their equity to a foreclosure auction,” Rick Sharga, Attom’s executive vice president of market intelligence, said in the report. “This option wasn’t available to distressed borrowers during the Great Recession, when many borrowers were underwater on their loans.”

Of the more than 227,000 homeowners who were facing possible foreclosure in the third quarter of the year — a number that remains low by historical standards — about 92 percent had positive equity in their homes, Attom found.

But in some states, homeowners at risk of foreclosure were less well positioned to emerge from the situation unscathed. 

In Mississippi, for instance, only 75 percent of homeowners facing foreclosure had positive equity, leaving the remaining 1 in 4 with fewer options. Louisiana, Illinois, Maryland and Missouri were the states with the next-closest percentages of homes with positive equity that were facing foreclosure.

Nationwide, about 6 percent of mortgage-paying homeowners had no equity built up in the third quarter of the year — a smaller share than in the same period in each of the previous two years. And only half of those properties were considered “seriously underwater.” 

Attom defines properties as seriously underwater if the owner owes 25 percent more than the property’s estimated market value. Nationwide, fewer than 3 percent of mortgaged properties were considered seriously underwater in the third quarter of the year, the same share as did in the previous quarter.

The high home values on properties throughout the U.S. may also be driving more homeowners to take out lines of credit backed by their home equity, Sharga said in the report. The number of these home equity lines of credit taken out in the second quarter of 2022 was 43 percent higher than the same period last year, he said.

“Even though home price appreciation has slowed down dramatically in recent months, homeowners have continued to build equity,” Sharga said. “And it appears that many of those homeowners have decided to stay where they are rather than purchase a new home, and are beginning to tap into that equity.”

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