Housing

US Home Equity Soared $1.5 Trillion Last Year, With Western States Seeing Biggest Gains

Between December 2019 and December 2020, U.S. homeowners with a mortgage saw the equity in their homes rise by 16.2%. For the 62% of homeowners with a mortgage, that increase totaled $1.5 trillion.

Looked at slightly differently, the number of U.S. homes with underwater mortgages (i.e., the value of the home is lower than the amount of the mortgage) fell by 21% last year. That means 410,000 mortgages that were underwater have now regained positive equity value. About 1.5 million homes (3.6% of all U.S. mortgaged properties) are still underwater.

According to property analytics firm CoreLogic, home equity grew by an average of about $26,300 nationally last year. These are the 10 states with the largest gains:

  1. California: Up $55,000
  2. Idaho: Up $48,000
  3. Washington: Up $47,000
  4. Montana: Up $40,000
  5. Hawaii: Up $39,000
  6. Utah: Up $39,000
  7. Rhode Island: Up $39,000
  8. Massachusetts: Up $38,000
  9. New Hampshire: Up $36,000
  10. Arizona: Up $36,000

The three states posting the smallest gains were Illinois ($6,000), North Dakota ($8,000) and Iowa ($9,000).

Homeowners took advantage of equity gains last year by cashing out nearly $153 billion in home equity, according to Freddie Mac data released last week. Some 38% of all refinanced mortgages in the fourth quarter of 2020 were cash-out transactions that increased the homeowner’s loan balance by at least 5%. The record high for cash-out borrowers is 89%, set in the third quarter of 2006.

In the fourth quarter, an estimated $48 billion in net home equity was cashed out, up from $34.3 billion a year earlier and substantially less than the peak cash-out refinance volume of $108.1 billion during the second quarter of 2006.

Freddie Mac commented:

With mortgage rates reaching multiple record lows in 2020, refinance borrowers locked in thousands of dollars in savings on average by refinancing, sometimes more than once. Some homeowners also took advantage of the opportunity to tap equity through cash-out refinancing, while others sped up the rate at which they paid down their principal by refinancing into a shorter term. With mortgage rates still near a record low, we forecast that refinance volume will remain strong in 2021. Though there are still many homeowners who could benefit from refinancing their properties, without an unexpected drop in mortgage rates, the volume of refinances will likely contract this year relative to the near-record setting levels we saw last year.