While many homebuyers have found it difficult to keep with up the record surge in home prices in 2021, homeowners are benefitting from this growth in the form of home equity.
U.S. homeowners with mortgages collectively gained more than $3.2 trillion in home equity from the third quarter of 2020 to the third quarter of 2021, according to data from CoreLogic. And that doesn’t even include equity gains on properties that are owned outright. The $3.2 trillion gain applies to about 63% of properties.
As a whole, homeowners with mortgages saw their home equity increase 31.1% year over year. On an individual basis, the average homeowner gained $56,700 in home equity over the last year.
But equity gains were not evenly spread across the nation. On the high end, homeowners in California earned an average of $118,700. On the low end, homeowners in North Dakota saw an average of $15,400 in year-over-year equity gains.
Regionally, West Coast and Mountain West states saw the largest equity gains while the Midwest and Northeast saw more moderate growth.
National distribution of home equity
Driven by 18% home price gains, the record surge in home equity especially benefitted the nearly 470,000 homeowners that previously had negative equity. Also known as being “underwater,” negative equity is when a borrower owes more on their mortgage than their house is worth.
Over the last year, the number of homes with negative equity decreased by 28.9% from 1.6 million to 1.2 million. The share of homeowners underwater is 2.1%, down from 3% last year.
The rise in equity, in addition to mortgage relief programs, has helped stave off a wave of foreclosures as struggling homeowners exit the COVID-19 forbearance period. With home prices up, many are able to sell their homes for enough to cover the outstanding mortgage debt.
“Not only have equity gains helped homeowners more seamlessly transition out of forbearance and avoid a distressed sale, but they’ve also enabled many to continue building their wealth,” said CoreLogic CEO Frank Martell in the Homeowner Equity Insights report. “This financial reserve will be especially helpful for homeowners looking to fund renovation projects.”
Renovation projects are still top-of-mind for many homeowners. A Zillow survey found that nearly 75% of homeowners are considering at least one home improvement project in 2022. Bathroom and kitchen renovations topped the list, followed by adding or improving an office.
Home improvement projects are one way to realize and reinvest home equity gain to further increase the value of a home. With home prices still rising, this route may be preferable to selling and, in turn, becoming a homebuyer in an unfriendly market.