Homeowner Wealth Dips: Declining Property Values Erode Overall Equity

Overall equity for homeowners is ticking downward as home values decline, according to a report from real estate data provider ATTOM.

ATTOM's fourth-quarter 2023 U.S. Home Equity and Underwater report shows that 46.1% of mortgaged residential properties were considered equity-rich in the fourth quarter, meaning that the combined estimated amount of loan balances secured by those properties was no more than half of their estimated market value. That's a drop from 47.4% in the third quarter, marking the second consecutive quarterly decline.

The report also indicates a slight increase in the proportion of mortgaged homes that were seriously underwater during the final months of 2023, rising from 2.5% to 2.6%. Seriously underwater mortgages are defined as those with combined estimated loan balances secured by properties that exceed the properties' estimated market value by at least 25%.

"There are increasing signs suggesting that the extended period of prosperity in the U.S. housing market may be showing signs of easing," ATTOM CEO Rob Barber said. "It's not as if there are big warning signs flashing. Similar things were happening early last year before the market surged in the spring. But the softening of equity follows a dip in resale profits last year for the first time in more than a decade as prices have stopped soaring through the roof. This year's peak buying season will tell us a lot about whether things really have settled down long-term."

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The decline in prices during the fourth quarter marked the conclusion of a year characterized by modest annual growth of 2% in the median home price. It's the weakest expansion since 2012 when the U.S. housing market was in the early stages of recovery from the Great Recession that occurred in the late 2000s. 

Last year witnessed only a moderate pace of price growth, influenced by a combination of factors such as increasing mortgage rates countering the upward pressure from a limited supply of homes for sale, robust employment rates and a thriving investment market.

The share of mortgages that were equity-rich declined in 41 states from the third quarter to the fourth quarter, with the biggest declines occurring in the Midwest and West. Missouri saw the biggest decline, going from 41.9% in the third quarter to 37.3% in the fourth quarter. Minnesota was down from 39.5% to 25.9%, and Michigan dropped from 48.5% to 45.1%.

Seriously underwater mortgage levels were slightly up in most states, with the biggest increases clustered in the Midwest and South. 

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