Housing cooloff hits equity cushion for owners in the west, south

The share of mortgage borrowers who are equity-rich declined for a second quarter, with owners in the West and South taking the biggest hit in 2023, according to a new study.

Equity-rich mortgages — those that have a loan-to-value ratio of 50% or lower, meaning the borrower’s equity stake is at least half the property’s value — decreased to 46.1% from 47.4% the prior quarter, according to the US Home Equity & Underwater Report published by real estate data firm ATTOM. 

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The measure closed the year down almost 2 percentage points from the end of 2022 — though it’s still at a historically high level, after owners reaped gains from the pandemic housing boom. The biggest declines last year were in the South and West regions, while the Northeast had the best gains. 

“The extended period of prosperity in the U.S. housing market may be showing signs of easing,” said Rob Barber, chief executive of ATTOM. Still, “it’s not as if there are big warning signs flashing.” 

After a long period when soaring prices boosted homeowners’ wealth, median increases last year were among the weakest since 2012, when the U.S. housing market was just starting to recover from the Great Recession, according to ATTOM. Rising mortgage rates offset upward pressure from a tight supply of homes for sale, strong employment and a rising investment market.

The state with the highest levels of equity-rich mortgaged properties last quarter was Vermont at 83%, followed by Maine and California. At a more granular level, some wealthy zipcodes — for example in Naples, Florida or Martha’s Vineyard in Massachussetts — have rates above 85%.

The share of homes that are considered seriously underwater — meaning loans are at least 25% above the estimated market value — has been rising but remains low at just 2.6% of all residential mortgages. 

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