RECENT HOMEOWNER EQUITY GROWTH
Lately, the impact of Homeowner Equity on wealth accumulation has grown. 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. Furthermore, the number of mortgaged residential homes with negative equity in the fourth quarter of 2020 decreased 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 moves 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 was 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 rose 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 AS A COMPONENT OF NET WORTH
Equity in a home is a significant component of net worth. 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.
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. For the highest income households, it represented 34% of total assets.
RENT VS. OWN COMPARISON
How does renting property affect homeowner equity and wealth? Renters do not benefit from any housing appreciation. They also don’t benefit from the amortization of a mortgage. These two factors are significant contributors to home equity that results in net worth. Run a “Rent vs. Own comparison for yourself and find out how much a down payment can grow in seven years.