Borrowers gain decade-high levels of home equity in first quarter

The feverish home buying of the past year led to skyrocketing values and the largest amount of owner equity in at least a decade.

On an annual basis, homeowners with mortgages collectively compiled over $1.92 trillion in equity in the first quarter of 2021, good for an average gain of $33,403 per borrower, according to CoreLogic. These compared to $1.58 trillion and $26,512 the prior quarter and $665 billion and $12,188 a year ago.

The growth also dropped the negative equity share by 24% annually to the lowest rate since at least 2009. The share of underwater borrowers fell to 2.6% with an aggregate unpaid principal balance of $273 billion from 2.9% and $281.1 billion in the fourth quarter of 2020 and 3.4% and $286.3 billion year-over-year.

This increased equity will help curb post-CARES Act distress since borrowers can tap into their gains instead of falling into foreclosure.

“Homeowner equity has more than doubled over the past decade and has become a crucial buffer for many weathering the challenges of the pandemic,” Frank Martell, president and CEO of CoreLogic, said in the report. “These gains have become an important financial tool and boosted consumer confidence in the U.S. housing market, especially for older homeowners and baby boomers who've experienced years of price appreciation."

The largest gains by state came out west, with Idaho’s annual surge of $70,920 leading the way. California and Washington trailed closely, with yearly jumps of $69,636 and $65,831, respectively. At the other end of the spectrum, North Dakota experienced the smallest growth, only adding $8,419 on average, with Iowa’s $10,504 and Oklahoma’s $12,737 behind.

Louisiana had the highest percentage of underwater properties at 8.27%, followed by 5.58% in Iowa and 5.54% in Illinois. California boasted the lowest share with 1.07%, followed by 1.23% in Oregon and 1.34% in Utah. Overall, 12 other states had negative equity shares below 2%.

However, with signs that the market could be cooling and the rate of home value growth expected to taper off into 2022, equity gains will likely start decreasing as well.