A recent report on home equity reveals that soaring real estate prices have led to a significant increase in the number of homeowners who are considered “equity rich.” This term refers to homeowners who possess at least 50% equity in their property, meaning their mortgage balance is no more than half of their home’s market value.
By the end of 2021, 42% of residential properties with mortgages were classified as equity-rich, according to Attom, a real estate data firm. This is a notable increase from 30% in the same quarter of 2020.
Todd Teta, Chief Product Officer at Attom, commented, “As home prices continued to climb, so did the equity in residential properties. Nearly half of all mortgage holders across the country are now in an equity-rich position.”
The report also highlighted that only 3% of loans were seriously underwater, which occurs when homeowners owe at least 25% more on their loans than the home’s current value. This contrasts sharply with the number of equity-rich homes, which outnumber seriously underwater properties by a ratio of 13 to 1.
Despite the uncertainty surrounding the duration of the current real estate boom, Teta noted that the robust equity situation is beneficial for both the economy and homeowners. “Homeowners are currently in a favorable position, as the wealth accumulated in their homes continues to grow,” he said.
As home prices surged past $300,000 and increased by over 10% in many areas last year, the gap between mortgage balances and property values widened, contributing to the rise in home equity. The greatest increases in equity-rich homes were observed in the South and West regions.
In Tennessee, the proportion of equity-rich mortgaged homes jumped from 41.4% in Q3 to 47.2% in Q4, with North Carolina, Nevada, Georgia, and Arizona also seeing significant gains. Austin, Texas, topped the list of equity-rich cities, with 70.6% of mortgage holders in this category, followed by Boise, Idaho; San Jose, California; Spokane, Washington; and Salt Lake City, Utah.
Conversely, cities with the fewest equity-rich properties included Jackson, Mississippi, where only 17% of homes were equity-rich, along with Baton Rouge, Louisiana, and Wichita, Kansas—cities also noted for having a higher proportion of seriously underwater mortgages.
The report further indicated that the South and Midwest experienced the most significant declines in seriously underwater properties. Mississippi saw the largest drop, with seriously underwater mortgages decreasing from 17.7% in Q3 to 12.2% in Q4. Other states with notable declines include Maine, Iowa, West Virginia, and Arkansas.
However, some states, such as Wyoming, experienced an increase in seriously underwater properties, rising from 11.5% to 14.3% quarter-over-quarter, with Connecticut, Arizona, and Utah also seeing similar trends.
