Homeowner’s equity: The good news keeps coming

First, the number of mortgages with negative equity – that is the mortgage amount in excess of the home value – declined substantially YoY and currently sits at 1.1 million or 2.1% of the total number of outstanding mortgages.

To get a sense of how far the housing market has come since the global financial crisis, in 1Q 2010 almost 26% or 12.1 million of the outstanding mortgages were underwater.

Second, the substantial growth in homeowner’s equity has significantly enhanced the mortgage leverage profile for a majority of homeowners. As the data here indicates, 92% of the approximately 54 million 1-4 family mortgages have a loan-to-value (LTV) below 80% with 48% possessing an LTV below 50%. Conversely, only 2.5% of the mortgages have an LTV greater than 90%.

The flip side of the negative equity equation is the amount of gross and net equity homeowners are currently sitting on. As the data in highlights, homeowners have more than USD 25 trillion and USD 13.5 trillion of gross and net equity respectively. We should note that only some 63% of the roughly 84 million single-family homes have mortgages with the balance owned free and clear. In our view this strong equity base should help offset some challenges associated with rising inflation, at least for those with positive equity in their homes. In addition, although we expect the rate of HPA to slow, the dearth of available supply of homes for sale coupled with a solid demographically driven demand outlook is likely to keep the homeowner’s equity outlook constructive.

Main contributor – Jonathan Woloshin

Content is a product of the Chief Investment Office (CIO).

Original report – Homeowner’s equity: The good news keeps coming, 10 March 2022.


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