Home
equity reports have not been particularly interesting over the last few years.
Home prices kept rising, owners kept whittling down their loan-to-value (LTV)
ratios and avoiding the serial cash-out refis we have seen in earlier boom
times.

With
the current crisis, an equity buffer becomes pretty important. The narrow
margins that allowed mortgaged homeowners to quickly plunge underwater when
home values dropped in the Great Recession cost many their homes. Equity not
only allows a homeowner more options – refinancing into a lower cost mortgage,
flexibility in selling the house or in negotiating a loan modification – but also
gives them an incentive to stay in the home.

CoreLogic
reports that home prices, as yet unaffected by the COVID-19 pandemic, continued
to rise in the first quarter of 2020, pushing home equity higher. Nationwide,
homeowners with a mortgage, roughly 63 percent of all homeowners, saw their
equity increase by 6.5 percent since the first quarter of 2019, a $9,300 per
household increase, and an aggregate of $590
billion nationally. States with the largest gains include Idaho, where in the
first quarter equity grew by an average of $24,400, Washington, with an average
of $20,800 and Arizona at $19,900.

 

 

“Many homeowners will
experience a recession during their lifetime, and it is reasonable to compare
the current recession to those in the past,” said Frank Martell, president and
CEO of CoreLogic. “But the comparison is not apples to apples – every recession is different.
Primary drivers of the Great Recession were an overbuilt housing stock, risky
mortgages and the collapse of home prices, creating a massive increase in
negative equity that proved difficult to recover from. Today’s housing
environment has low vacancy and delinquency rates and a large home equity
cushion. While the CoreLogic HPI forecasts a decline in home prices in the
coming year, we can also expect the majority of homeowners to remain above
water.
” 

From the fourth quarter of 2019 to
the first quarter of this year the number of homeowners in negative equity,
that is owning more on their mortgages than their homes are worth, decreased by
3.1 percent to 1.8 million homes or 3.4 percent of all mortgages properties.
This is a 16 percent decrease year-over-year. As the economy climbed out of the
recession in the first quarter of 2010, 25.9 percent or 12.1 million homes were
still underwater. The total gain since the end of the great recession in 2010
is $6 trillion with the average homeowner accruing about $106,100 in equity
since then.

The national aggregate value of
negative equity was approximately $284 billion at the end of the first quarter
of 2020, down by $1.9 billion from the fourth quarter of 2019 and down year
over year by approximately $22.6 billion, or 7.4 percent year-over-year.  

Those borrowers with LTVs between 95
and 105 percent are fragile at this point. Any positive or negative price changes
are likely to move them into or out of negative territory. CoreLogic estimates
that, with a 5 percent price increase, 310,000 homes would gain equity, a 5 percent
decline in prices would drive 420,000 underwater

“The pandemic recession will likely lead to price declines in
many areas during the next year and weaken home equity gains,” said Dr. Frank
Nothaft, chief economist for CoreLogic. “However, price declines will be far
less than those experienced during the Great Recession, when the national
CoreLogic Home Price Index fell 33 percent peak-to-trough. Our latest forecast
shows the national index to have a peak-to-trough decline of 1.5 percent.”

By Jann Swanson , dated 2020-06-11 11:38:37

Source link

Courtesy of Mortgage News Daily

Leave a Reply