Hot housing market fuels rise in homeowner equity

The red- hot U. S. housing market is paying off for many homeowners, even those who aren’t looking to sell their home.

On average, homes with a mortgage gained $ 26,300 in equity in the last three months of 2020 versus a year earlier, according to real estate information company Corelogic. That average gain i s the highest since 2013, the firm said.

Corelogic said homes with a mortgage account for about 62% of all U. S. properties. Taken together, the home equit y for those properties surged to more than $ 1.5 trillion, an increase of 16.2% from a year earlier.

“In our view, these strong equity gains are a clear positive for homeowner balance sheets, as well as for overall additional consumer spending, should homeowners be desirous of t apping a portion of their equity gains,” Jonathan Woloshin, a real estate and lodging analyst at UBS, wrote in a research note last week.

Rising home values and low mortgage rates spurred many U. S. homeowners to refinance and cash in some of the equity in their home last year. Homeowners pulled out $ 152.7 billion in equity, an increase of 41.7% from 2019 and the highest refinancing cash- out dollar amount since 2007, according to mortgage buyer Freddie Mac.

Homeowners also tapped into the equity in their home via a home equity line of credit, or HELOC. The volume of HELOCS more than doubled in 2020 from a year earlier to $ 74.9 billion.

When home equity rises, it reduces the risk that homeowners with mortgages will end up “underwater” on their loans, meaning they owe more on the mortgage than the home is worth. That can happen when a home’s value declines or when the size of the mortgage increases.

In the fourth quarter, some 410,000 U.S. residential properties were underwater on their mortgage, according to CoreLogic. That’s a 21% decline from the same period in 2019, when 1 .9 million homes, or 3.6% of all properties with a mortgage, were in negative equity, the firm said.