Home equity trends mixed across U.S. in third quarter despite continued price increases

ATTOM, a land, property and real estate data company based in Irvine, California, has released its third-quarter 2023 U.S. Home Equity & Underwater Report, which shows that 47.4 percent of mortgaged residential properties in the United States were considered equity-rich in the third quarter. Equity-rich means that mortgage loan balances secured by those properties is no more than half of their estimated market values.

The portion of Utah residential mortgages considered equity-rich stands at 57.8 percent, according to the report.

The portion of U.S. mortgaged homes that was equity-rich in the third quarter of 2023 decreased from 49.2 percent in the second quarter of 2023 — the largest quarterly decline since at least 2019. The latest figure also was down from 48.5 percent in the third quarter of 2022. Those declines happened despite home values rebounding recently from a fallback that had lasted from the middle of last year to the early part of this year.

But while equity-rich levels dropped in the third quarter, the report also shows that the portion of mortgaged homes that were seriously underwater in the U.S. continued to improve. Just 2.5 percent of all residential mortgages, or one in 40, were considered seriously underwater in the third quarter of 2023. That meant they had a combined estimated balance of loans secured by the property of at least 25 percent more than the property’s estimated market value. The seriously underwater level dropped from one in 36 homes in the second quarter and from one in 35 in the third quarter of 2022, to the lowest point in at least four years.

“By all measures, homeowner equity around the country remained strong during the third quarter as millions of households kept benefiting from the nation’s extended runup in home values. At the same, though, we saw an unusual downturn at the equity-rich end of the spectrum,” said Rob Barber, chief executive officer for ATTOM. “That could have just been a temporary blip. It also could have reflected an increase in long-time owners who had lots of equity built up selling their homes, or perhaps borrowing against their rising wealth and slipping out of equity-rich territory. The fourth-quarter data should say more about whether residential equity in the U.S. has indeed topped out.”

The mixed equity patterns came as the U.S. housing market continued recovering from the downturn that had threatened to end the decade-long run of price and equity growth. The median nationwide single-family home price rose 11 percent over the second and third quarters of this year following an 8 percent drop from mid-2022 to early 2023. Values went back up as the job market remained strong, with the national unemployment rate below 4 percent, and consumer-price inflation was down to less than half the level of a year earlier. A strong investment market also put more money in the hands of potential buyers.

An ongoing tight supply of homes put additional upward pressure on prices along with a temporary lull in a two-year rise in home mortgage rates. The potential for more uneven equity trends remains in place as mortgage rates rise toward 8 percent for a 30-year loan and the housing market heads into its annual slow season, which usually leads to smaller price increases or even small declines.

The portion of mortgages that were equity-rich went down in 29 of the 50 U.S. states from the second quarter of 2023 to the third quarter of 2023, commonly by one to four percentage points. The biggest declines came in the South, led by South Carolina (portion of mortgages homes considered equity-rich decreased from 50 percent in the second quarter of 2023 to 43.7 percent in the third quarter of 2023), Florida (down from 60.4 percent to 54.4 percent), Kentucky (down from 42.1 percent to 37.1 percent), California (down from 63.3 percent to 58.5 percent) and Oklahoma (down from 36.5 percent to 32.5 percent).

At the other end of the scale, equity-rich levels rose in 21 states from the second quarter to the third quarter of this year, with the largest improvements concentrated in the Northeast. The biggest increases were in South Dakota (up from 46.4 percent to 49.9 percent), Maine (up from 56 percent to 59.3 percent), Connecticut (up from 38.6 percent to 41.5 percent), New Jersey (up from 43 percent to 45.9 percent) and New Hampshire (up from 56.6 percent to 59.4 percent).

The portion of mortgaged homes considered seriously underwater dropped, and remained historically low, during the third quarter of 2023 in 43 states. The biggest decreases were clustered in the Midwest and the Northeast, a region that has some of the nation’s higher levels of seriously underwater mortgages. The improvements were led by Indiana (share of mortgaged homes that were seriously underwater down from 8.1 percent in the second quarter of 2023 to 2.6 percent in the third quarter of 2023), Hawaii (down from 3.6 percent to 1.6 percent), South Dakota (down from 4 percent to 2.6 percent), Missouri (down from 4.8 percent to 3.9 percent) and Maine (down from 2.7 percent to 1.9 percent).