High mortgage rates and looming economic uncertainty caused trillions in equity to evaporate from the housing market in the third quarter of 2022, according to Black Knight’s mortgage monitor report. And while additional declines are expected to be on the horizon, the good news is that the country’s housing equity position is still strong compared to the start of the pandemic.
About $1.3 trillion in recently added equity vanished from the housing market during the third quarter, according to the report — the largest quarterly dollar decline on record. Equity among mortgaged homes dropped by about $1.5 trillion from its May peak — with the average borrower’s equity declining by about $30,000 from earlier this year.
“In the span of just three months, U.S. mortgage holders saw a total of $1.3 trillion in newly acquired equity evaporate,” said Ben Graboske, president of Black Knight Data & Analytics. “That is – by far – the largest quarterly decline on record by dollar value, and the largest since 2009 on a percentage basis.
Tappable equity, which is the amount a homeowner can borrow against while keeping a 20% equity stake, hit an all-time high of $11.5 trillion in the second quarter of 2022. That figure declined by $1.17 trillion, or 10%, in the third quarter, “which may, along with rising rates, create headwinds for equity-related lending,” the report said.
Median home prices dropped 0.52% in September, continuing a three-month streak of declines, but slowed at half the pace of the previous two months. Annualized price appreciation slowed to 10.7% in September, a 1.2% drop from August, the smallest retreat seen in four months.
Despite the price corrections, home values in the nation’s 50 largest markets remain elevated by anywhere from 19% to 66% compared to the start of the pandemic.
Equity positions also remain strong, and are $5 trillion, or 46%, above pre-pandemic levels. In turn, the average mortgage holder is still up by more than $92,000 compared to the start of the pandemic.
There are fewer than 500,000 homes underwater nationwide, according to the report, although the figure climbed by about 275,000 over the past four months.
“The vast majority of homes at risk of falling underwater are those that were purchased in 2022 and late 2021, at or near pandemic-era peak prices,” Graboske said.
While these loans deserve careful, ongoing monitoring, just 3.6% of nearly 53 million U.S. mortgage holders are either underwater or have less than 10% equity in their homes, he said.
At 0.84%, a historically and extremely low share of homes are in negative equity positions, according to Black Knight.