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National
homeowner equity grew in the fourth quarter of 2020 by $1.5 Trillion or 16.2%
year-over-year based on a CoreLogic analysis. The study was done on the
six out of ten homeowners who have mortgages on their home. The fourth
quarter of 2020 also saw the number of mortgaged residential homes with
negative equity decrease by 8% from the third quarter. Compared to the
same quarter in 2019, negative equity decreased by 21%. Equity is defined
as the value of the home less the mortgage owed. Negative equity means
that the homeowner's debt is more than the value of the home.
Appreciation is the dynamic that is moving homeowner's equity to the positive
position. On a national
basis, according to National Association of REALTORS®, annual price growth
for the last ten years has been 6.4%. In the last five years, it has
grown at 7.3% annually. According to the CoreLogic Home Price Index,
home prices in December 2020 were up 9.2% from the year before. Frank Nothaft,
Chief Economist for CoreLogic, is quoted as saying "the amount of home
equity for the average homeowner with a mortgage is more than $200,000." Equity in a home
is a significant component of net worth. The latest Survey of Consumer
Finances reports the median homeowner has 40 times the household wealth of a
renter: $254,000 compared to $6,270. According to the 2019 Survey of
Consumer Finances by First American, housing wealth was the single biggest
contributor to the increase in net worth across all income groups. The study also
concluded that housing wealth represented nearly 75% of total assets of the
lowest income households. For homeowners in the mid-range of income, it
represented 50-65% of total assets and 34% of total assets for the highest
income households. Renters do not benefit from the appreciation
of housing or the amortization of the mortgage which are significant
contributors to home equity that results in net worth. Examine what a
down payment can grow to in seven years with a Rent vs. Own. |
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