Having Low Home Equity Could Spell Trouble for Some Owners

Key Highlights

• Home equity grew cumulatively to +$1.5T for homeowners with a mortgage in 2020
• Added together for all US homeowners, home equity up +$12T from Great Recession low point

Home Equity Growth Good News for Homeowners

With home price growth averaging +5.7% nationally, according to the CoreLogic Home Price Index, and home equity growing +$1.5T for homeowners with a mortgage during 2020, news has been great for many, but not all, homeowners.

The more home prices increase, the more home equity increases for homeowners with a mortgage.  According to the CoreLogic Home Equity Report, the average homeowners with a mortgage gained $26,300 in home equity in 2020.

All Home Equity Growth Is Not Equal

Just as home prices vary across the US, growth in home equity varies.

The average homeowner gained $26,300 during 2020.  However, homeowners in California, Idaho and Washington state saw double equity gains in 2020 simply because those states saw stronger appreciation rates and higher home values.

In California, Idaho and Washington State, equity gains averaged $50,000.  Conversely, in North Dakota, Iowa and Oklahoma, home equity gains averaged some $9,000 from December 2019 to December 2020.

Loan tenure also matters.  The longer the homeowner has owned the home and the lower their remaining loan balance is, the higher the total home equity per borrower.

Average Total Equity per Homeowner

The average homeowner with a mortgage had approximately $204,000 in home equity at the end of 2020.

Again, there are differences.  The average borrower in Hawaii has nearly $500,000 in home equity while the average borrower in Louisiana has just over $70,000 in home equity. The average borrower in the state of Washington has approximately $321,000 in home equity while the average borrower in New Mexico has about $133,000.

States with Highest Rates of Forbearance

Louisiana leads the pack with the highest rate of forbearances at 10%. Nevada, Texas, New York and Hawaii all trail at 8% and higher.  Such forbearance rate highs reflect hardest-hit job losses due to the pandemic (travel, leisure, hospitality) and job losses in the oil industry due to last summer’s hurricanes in the Gulf Coast.

10% in Home Equity “Magic” Number

According to CoreLogic, having a minimum of 10% in home equity is key to understanding options homeowner borrowers may have as consider their potential to exit forbearance with their home in tact.

While nationally only 4% of borrowers have less than 10% in home equity, more than one in ten borrowers in Louisiana have less than 10% in equity.

Other states having a relatively higher share of borrowers with less than 10% in home equity are Illinois, Connecticut and Iowa.

Thanks to CoreLogic.

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