What's Happening?
Homeowners in the U.S. are experiencing a decline in equity as home values have been losing ground throughout the year. According to a report from Cotality, borrower equity fell by 2.1% in the third quarter
compared to the same period last year, amounting to a collective loss of $373.8 billion. Despite this decline, homeowners still hold a collective net equity of $17.1 trillion for homes with a mortgage. The average homeowner saw a third-quarter equity decline translating to a loss of $13,400. Additionally, the number of homes in a negative equity position, where the home is worth less than the mortgage, increased by 21% from the previous year, reaching 1.2 million homes. This shift in equity trends is attributed to the slowing pace of home price growth and affordability challenges, particularly affecting first-time and lower-income buyers.
Why It's Important?
The decline in home equity is significant as it affects homeowners' financial stability and their ability to leverage their homes for additional financing. The increase in negative equity positions can lead to financial strain for homeowners who purchased homes at peak prices with higher mortgage rates. This situation may also impact the broader housing market, as reduced equity can limit homeowners' ability to sell or refinance their homes. The trend highlights the challenges faced by first-time and lower-income buyers, who may have over-leveraged themselves with minimal down payments or piggyback loans. The overall decline in equity could also have implications for consumer spending and economic growth, as homeowners may feel less wealthy and more cautious in their financial decisions.
