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Home equity rises at near record level

The U.S. housing market added $1.4 trillion in home equity over the 12 months through March, a nearly unprecedented gain, according to a recent report by CoreLogic.

“It is one of the largest increases in home equity that we have seen probably in 12 years or so,” CoreLogic Chief Economist Frank Nothaft told Scotsman Guide News.

homeequitygainCoreLogic estimated that the total increase in equity on mortgaged properties alone totaled around $1.1 trillion in the 12 months through the first quarter of 2018.

“There is roughly a third of all homeowners who own their home free and clear, no mortgage at all,” Nothaft said. “If you add them in, the total increase in home equity wealth over the last 12 months is $1.4 trillion.”

Nothaft said that the overall equity in the U.S. market at the end of the first quarter stood at around $15 trillion. Mortgage debt totaled around $10 trillion. The overall value of the U.S. residential market reached about $25 trillion.

According to CoreLogic, the average homeowner gained $16,300 in home equity in the 12 months through March, with Western states gaining the most. Washington state homeowners accumulated an average of around $44,000 in home equity, for example, whereas California homeowners gained approximately $51,000 in home equity.

Homeowners have been tapping equity through cash-out refinances and home equity lines of credit [HELOCs], Nothaft said.

“The percent of current refis that have a cash-out component in the first quarter was running about 40 percent,” Nothaft said. “It is probably going to go even higher in the second half of 2018. So I wouldn’t be surprised if almost half the loans are refinanced loans and actually have a cash-out component.”

Nothaft said that HELOC origination counts have remained stable despite changes in the U.S. tax code in December that now prevent people from deducting interest on HELOC debt in most cases. This, he said, is evidence that people are using HELOCs to tap their equity.

Other studies have also pointed to massive gains in equity. In April, Black Knight estimated that “tappable equity” — or the amount that realistically was available to a homeowner to borrow against — stood at $5.4 trillion at the end of 2017, which was a new record. Black Knight estimated $735 billion in tappable equity was added in 2017, and $262 billion was withdrawn last year via cash-out refinances and HELOCs.  

Attom Data Solutions reported that 13.8 million properties were “equity rich” at the end of the first quarter, in other words, the owners held an equity stake of at least 50 percent of the home’s value.  

Nothaft said strong growth in home prices has pushed up equity levels at a pace not seen since the 2005-2006 period. CoreLogic’s national home-price index rose 6.7 percent year over year in the first quarter, which was the strongest pace in several years, he said.

The recent rise in home equity is second only to the gains at the height of the last housing boom.

“We had a crazy period back in 2006,” Nothaft said. “There was a period there where the increase was even more rapid in 2005 and 2006. Home prices were growing very rapidly. We also had a lot of new home construction, more than double the amount of new homes [were] being built in ’05 and ’06, compared to what we have seen in the last year.”  


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