A “Drop in Equity” Doesn’t Mean Low Equity
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A “Drop in Equity” Doesn’t Mean Low Equity


A “Drop in Equity” Doesn’t Mean Low Equity

Worry often crosses a seller’s mind when reading “a drop in equity” on the news or social media. However, a drop in equity does not mean low equity. In recent years, a large boost in equity occurred during the later half of the pandemic. This rise was noted as the ‘unicorn’ years, which occurred due to the rise in house prices. Sadly, all good things come to an end and the marketing value attempted to even itself out resulting in a minor drop of equity. Based on the most recent report from CoreLogic, there was a 0.7% dip in homeowner equity over the last year. However, the headlines reporting on that change aren’t painting the whole picture. The reality is, while home price deprecation during the second half of last year caused equity to drop, the data shows homeowners still have near record considerable amounts of equity. but just because house values are not as high as they were a year ago, doesn’t mean the equity is in any way low.

The graph below helps illustrate this point by looking at the total amount of tappable equity in this country going all the way back to 2005. Tappable equity is the amount of equity available for homeowners to access before hitting a maximum 80% loan-to-value ratio (LTV). As the data shows, there was a significant equity boost during the ‘unicorn’ years as home prices rapidly appreciated (see the pink in the graph below).

And there’s more good news. Recent home price reports show the worst home price declines are in the past, and prices have started to go up again! Selma Hepp, Chief Economist at CoreLogic, explains that “Home equity trends closely follow home price changes. As a result, while the average amount of equity declined from a year ago, it increased from the fourth quarter of 2022, as monthly home prices growth accelerated in early 2023.” Which emphasizes the positive turn presented in home prices and the hope help in the future of equity.

“Homeowners today have an average of $302,000 in equity in their homes,” notes Odeta Kushi, a Deputy Chief Economist at First American. which means if you’ve owned your home for a few years, you will likely see a rise in your equity, even more than the ‘unicorn’ years. And even if you just bought your home, you will still witness a price appreciation over the next year, meaning your equity is returning to the place it once was.

Context is everything when looking at headlines. While homeowner equity dropped some from last year, it’s still near all-time highs. Let’s connect so you can get the answers you deserve from an expert who’s here to help as you plan your move this year.