U.S. homeowners with mortgages — roughly 63% of all properties — have seen their equity increase by 29.3% year over year, according to CoreLogic's Homeowner Equity Report for the fourth quarter of 2021.
This represents a collective equity gain of over $3.2 trillion, and an average gain of $55,300 per borrower, since the fourth quarter of 2020, CoreLogic said.
Home prices continue to increase nationwide, with prices rising 18% year over year in the fourth quarter of 2021, up from the 8% annual gain recorded the previous year. The rapid pace of appreciation has helped push the national negative equity figure to the lowest in over a dozen years, with just 1.1 million homeowners underwater on their mortgages.
Negative equity, also referred to as "underwater" or "upside-down" mortgages, applies to borrowers who owe more on their mortgages than their homes are currently worth. As of the fourth quarter of 2021, negative equity share and the quarter-over-quarter and year-over-year changes were as follows:
- Quarterly change: From the third quarter to the fourth quarter of 2021, the total number of mortgages homes 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 2021, 1.5 million homes or 2.8% of all mortgaged properties, were in negative equity. The total decreased by 24.9%, or approximately 2.1% of all mortgaged properties, by the fourth quarter of 2021.
- Distribution of negative equity: Of loans in negative equity in the fourth quarter of 2021, 42% had a loan-to-value (LTV) ratio below 125%, and 58% had a LTV of 125% or higher.
Homeowners in western states saw the biggest equity gains by dollar value, led by Hawaii, California, and Washington. Annual home price appreciation increased by 19.1% in January 2022, according to CoreLogic’s latest Home Price Index, though growth is expected to slow eventually over the next year.
Because home equity is affected by the increase or decrease in a home's value, borrowers with equity positions near the negative equity cutoff are likely to move out of or into negative equity as prices change, respectively. Looking at the fourth quarter of 2021 book of mortgages, if home prices increase by 5%, then 141,000 homes would regain equity; if home prices decline by 5%, 183,000 would fall underwater. The CoreLogic HPI Forecast projects home prices will increase 5% from December 2021 to December 2022.
