2021 home equity gains unlikely as delinquencies poised to rise
While American homeowners enjoyed a continued rise in equity during the second quarter, home price growth will slow over the next 12 months as delinquencies rise, CoreLogic said.
Those conditions could lead to an increase in distressed property sales, which would put downward pressure on home prices. Lower prices, in turn, would have a negative effect on equity, the firm's quarterly Home Equity Report said.
"The CoreLogic Home Price Index registered a 4.3% annual rise in prices through June, which supported an increase in home equity," Frank Nothaft, chief economist, said in a press release. "In our latest forecast, national home price growth will slow to 0.6% in July 2021 with prices declining in 11 states. Thus, home equity gains will be negligible next year, with equity loss expected in several markets."
Delinquencies are expected to rise given that an unknown percentage of borrowers currently in forbearance will likely be unable to resume making timely payments.
Among American homeowners with a mortgage — a group that makes up 63% of all residential properties — the second-quarter year-over-year gain was at 6.6%. This was a collective equity gain of $620 billion, and an average gain of $9,800 per homeowner, since the second quarter of 2019.
"Homeowners' balance sheets continue to be bolstered by home price appreciation, which in turn mitigated foreclosure pressures," said Frank Martell, president and CEO of CoreLogic. "Although the exact contours of the economic recovery remain uncertain, we expect current equity gains, fueled by strong demand for available homes, will continue to support homeowners in the near term."
The states with the largest average gain in homeowner equity were Montana, up by $29,000; Idaho, up $21,000; along with Washington and Arizona, both with gains of approximately $29,000.
There were three states that had only an approximate $4,000 increase in average equity: New York, Michigan and Alaska.
At the end of the second quarter, there were 1.7 million homes, or 3.2% of all mortgaged properties, in negative equity. This was down from 3.4% on March 31, and from 3.8% on June 30, 2019.
On an aggregate basis, the value of the properties that owned more than they were worth was approximately $284 billion at the end of the second quarter. This is down from the first quarter by approximately $0.7 billion, or 0.2%, from $285 billion, and by approximately $20 billion, or 6.6%, from $304 billion in the second quarter of 2019.
CoreLogic calculated that if home values increase by 5%, about 270,000 properties would no longer be underwater. But if they fell by 5%, 380,000 properties would move into negative equity status.
The states with the largest share of underwater borrowers in the second quarter were Louisiana, 9.3%; Illinois, 6.5%; Connecticut, 6.4%; Iowa, 5.8%; and Arkansas 5%.
CoreLogic had insufficient data to determine homeowner equity for five states: Maine, Mississippi, South Dakota, Vermont and West Virginia.