by Calculated Risk on 12/09/2021 09:55:00 AM
This summer, home price growth reached the highest level in more than 45 years, pushing equity gains to another record high and allowing 70,000 properties to regain equity in the third quarter of 2021. These equity gains provided a crucial barrier against foreclosure for the 1.2 million borrowers who reached the end of forbearance in September.
“Home price growth is the principal driver of home equity creation,” said Dr. Frank Nothaft, chief economist for CoreLogic. “The CoreLogic Home Price Index reported home prices were up 17.7% for the past 12 months ending September, spurring the record gains in home equity wealth.”
Negative equity, also referred to as underwater or upside-down mortgages, applies to borrowers who owe more on their mortgages than their homes are currently worth. As of the third quarter of 2021, negative equity share, and the quarter-over-quarter and year-over-year changes, were as follows:
o Quarterly change: From the second quarter of 2021 to the third quarter of 2021, the total number of mortgaged homes in negative equity decreased by 5.7% to 1.2 million homes, or 2.1% of all mortgaged properties.
o Annual change: In the third quarter of 2020, 1.6 million homes, or 3% of all mortgaged properties, were in negative equity. This number decreased by 28.9%, or approximately 470,000 properties, in the third quarter of 2021.
o National aggregate value: The national aggregate value of negative equity was approximately $276.2 billion at the end of the third quarter of 2021. This is up quarter over quarter by approximately $8.2 billion, or 3%, from $268 billion in the second quarter of 2021, and down year over year by approximately $8.3 billion, or 2.9%, from $284.5 billion in the third quarter of 2020.
This graph from CoreLogic compares Q3 to Q2 2021 equity distribution by LTV. There are still a few properties with LTV over 125%. But most homeowners have a significant amount of equity. This is a very different picture than at the start of the housing bust when many homeowners had little equity.
On a year-over-year basis, the number of homeowners with negative equity has declined from 1.6 million to 470 thousand.