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Many Americans who own homes have received good news about their wealth. In the past year, the value of their USA homes has gone up, mainly because home prices are rising.
A recent study by CoreLogic, a real estate data firm, shows that the average USA homes equity has increased by $20,000. This is a significant 6.8% rise by the end of the third quarter compared to the same time last year.
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Despite facing a strong challenge from the highest mortgage rates in two decades, home prices have surged approximately 9% this year, as reported by the National Association of Realtors. This increase has positively impacted homeowners’ equity, which represents the difference between a home’s value and the remaining mortgage balance.
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Home equity is crucial for wealth-building as it allows property owners to access their home’s value, be it through a home-equity line of credit or by earning more when selling their property after settling the mortgage. Selma Hepp, Chief Economist at CoreLogic, notes that the growth in USA homes equity is closely tied to the growth in home prices, reflecting a substantial increase this year despite housing market challenges.
Having more equity in homes contributes to a sense of wealth among owners. Beyond this psychological aspect, building home equity serves as a financial buffer during emergencies and offers an additional asset source for significant expenses like college tuition or home repairs.
While the majority of USA homes saw an increase in equity in 2023, some regions, including Texas and New York, experienced a decline, with Texas homeowners, on average, losing around $9,000 in home equity compared to the previous year, according to CoreLogic’s study.
According to Hepp, the dip in home equity in Texas is partly attributed to a slowdown in the Austin real estate market, which experienced significant price surges during the pandemic. Despite this decline, Texas homeowners maintain substantial equity in their properties, averaging $217,000 each, as highlighted by CoreLogic.
Two additional states, New York and Utah, also witnessed decreases in home equity over the past year, with average losses of $7,525 and $873, respectively. Nonetheless, homeowners in these states still possess considerable average equity, amounting to $364,000 in New York and $348,000 in Utah.
Hepp emphasizes the impact of home price growth on these changes, particularly noting the decline in home prices in Texas throughout the year.
On the flip side, Hawaii, California, and Massachusetts, known for their high residential real estate prices, experienced the most substantial gains in home equity in 2023. These states already boast some of the highest home equity levels. For example, the typical homeowner in Hawaii holds about $717,000 in equity, while Californians, on average, have equity of around $634,000, according to CoreLogic.
Homeownership proves to be a route to increased wealth, supported by a Federal Reserve report indicating that the 66% of USA homes and property owners witnessed their equity climb from $139,100 in 2019 to $201,000 in 2022.
