You may see media coverage talking about a drop in home values. What is important to understand is that the capital or equity in a home is closely tied to the value of the home. So when home prices go up you can expect equity to go up. And when home prices go down, so does equity.
We know that home prices rose rapidly during the “unicorn” years. That means they were atypical years not common in the industry. That gave homeowners a considerable boost of capital. But those ‘unicorn’ years could not last forever. The market had to moderate at some point, and that’s what we saw late last year.
As home prices fell slightly in the second half of 2022, equity took a hit. According to CoreLogic’s most recent report, there was a 0.7% drop in homeowners’ equity over the past year. However, the headlines reporting that change do not paint the full picture. The reality is that while the decline in home prices during the second half of last year led to a drop in equity, the data shows that homeowners still have record amounts of equity.
But here’s what’s key to realize: even though there has been a small drop, total homeowner equity is still much higher than it was before the ‘unicorn’ years.
And there is more good news. Recent home price reports show that the worst declines in property values are behind us, and prices have begun to rise again. As Selma Hepp, chief economist at CoreLogic, explains:
“Home equity trends closely track changes in home prices. 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 price growth accelerated in early 2023.”
The last part of that quote is particularly important and is the piece of the puzzle that the news is leaving out. To further emphasize the positive spin we are already seeing, experts say that home prices are expected to appreciate at a more normal pace over the next year. In the same report, Hepp puts it this way:
“The average homeowner in the U.S. now has more than $274,000 in equity, up significantly from $182,000 before the pandemic. In addition, while homeowners in some areas of the country who purchased property early last year have no equity as a result of declines in prices, expected home price appreciation over the next year should help many homeowners recover some of that lost equity.”
That means that if you’ve owned your home for a few years, you likely still have a lot more equity than you did before the “unicorn” years. And if you’ve owned your home for a year or less, the forecast of more typical price appreciation over the next year should mean your equity is already on its way back up.
Context is everything when looking at the headlines. While homeowners’ equity declined a bit from last year, it’s still near all-time highs. Contact a trusted real estate professional so you can get the answers you deserve from the expert. This professional will help you make the best decision when selling your property.