Homeowners made $ 2 trillion richer in the first three months of 2021
Hélène H. Richardson | Denver Post | Getty Images
Homeowners are getting richer and richer as prices soar – and the numbers are staggering.
Those with mortgages – about 62% of all properties – saw their equity jump 20% in the first quarter from a year ago, according to CoreLogic. This represents a collective cash gain of almost $ 2 trillion. Per borrower, the average gain was $ 33,400.
The massive gain came from soaring home prices, which CoreLogic said rose more than 11% in March, at the end of the quarter, from a year earlier. This is the largest increase since 2006. Prices rose a further 13% in April.
Strong housing demand spurred by the coronavirus pandemic amid an already low supply has sparked bidding wars in markets across the country. Record mortgage rates for much of last year only added to the buying frenzy and helped fuel price hikes.
“Owner’s equity has more than doubled over the past decade and has become a crucial buffer for many people to overcome the challenges of the pandemic,” said Frank Martell, President and CEO of CoreLogic. “These gains have become an important financial tool and have bolstered consumer confidence in the US real estate market, especially for older homeowners and baby boomers who have seen years of price appreciation.”
As of June 1, there were still just over 2 million homeowners in Covid-related mortgage bailout programs, according to real estate data firm Black Knight. As these plans begin to expire, the equity in their home will help those in difficulty. They can still sell and get away with a potential profit if they have to.
“This reduces the likelihood that a large number of distressed homeowner sales will come out of forbearance later in the year,” said CoreLogic chief economist Frank Nothaft, adding that the average homeowner now has ‘approximately $ 216,000 in equity.
As a result, the share of borrowers with negative equity, who owe more on their mortgage than their home is worth, has declined. From the fourth quarter of 2020 to the first quarter of 2021, the total number of homes mortgaged in negative equity decreased by 7% to 1.4 million homes, or 2.6% of all mortgaged properties. Every year, the number of underwater homes has fallen by 24%.
Home values are expected to cool over the next few months as buyers already face a wall of affordability. Sales have started to slow down and price drops generally follow.
House prices are not expected to collapse, however, as demand for housing remains strong and demographics support it in the future. As prices moderate, buyers will come back. Unlike the last time home prices crashed, mortgage underwriting today is much stricter.