Underwater mortgages fall to lowest level in over a decade

CoreLogic released the Homeowners Net Worth Report for the fourth quarter of 2021, showing that US homeowners with mortgages experienced a 29.3% year-over-year increase in equity. This number represents an overall equity gain of more than $3.2 trillion and an average gain of $55,300 per borrower since the fourth quarter of 2020. According to CoreLogic’s Latest Home Price Indexyear-over-year price appreciation also increased by 19.1% in January 2022, although growth is expected to slow gradually over the next year.

Nationally, home prices rose 18% year-over-year in the fourth quarter of 2021, up from the 8% annual gain recorded in the fourth quarter of 2020. 1.1 million of homeowners under water on their mortgages. Owners in western states saw the largest equity gains in dollar value, led by Hawaii, California and Washington.

“Home prices rose 18% in 2021 in the CoreLogic Home Price Index, the largest annual gain in 45 years of history, generating a strong increase in home equity,” said Dr. Frank Nothaft, Chief Economist at CoreLogic. “For low- and middle-income homeowners, home equity has always been a major source of wealth.”

Negative equity, also known as underwater or reverse mortgages, applies to borrowers who owe more on their mortgages than their homes are currently worth. In the fourth quarter of 2021, equity ratio negative, quarter-over-quarter and year-over-year changes were as follows:

  • Quarterly change: From the third quarter of 2021 to the fourth quarter of 2021, the total number of homes mortgaged in negative equity decreased by 3% to 1.1 million homes, or 2.1% of all mortgaged properties.
  • Annual change: In the fourth quarter of 2020, 1.5 million homes, or 2.8% of all mortgaged properties, had negative equity. This number decreased by 24.9%, or approximately 380,000 properties, in the fourth quarter of 2021.
  • Breakdown of negative equity: Among negative equity loans in the fourth quarter of 2021, 42% had a loan-to-value ratio below 125% and 58% had a loan-to-value ratio of 125% or more.

Since home equity is directly affected by changes in house prices, borrowers with equity positions close to the negative equity threshold are most likely to exit or move to negative equity at as prices change. If home prices rise 5%, some 141,000 homes would return to equity, according to the mortgage book for the fourth quarter of 2021. If home prices fall 5%, about 183,000 homes would fall below the water. The CoreLogic HPI forecast predicts that home prices will increase by around 5% from December 2021 to December 2022.

CoreLogic’s next Homeowner Equity Report will be released in June, with data for the first quarter of 2022. For current housing trends and data, visit the CoreLogic Intelligence blog here.

To read the full report, including charts and methodology, Click here.

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