Recently, home equity has been a hot topic in real estate news. And, if you've been paying attention, you may have noticed that the number of homeowners with negative equity is increasing. But don't be alarmed by the headlines.
In reality, the headlines do not provide all of the information required to understand what is happening and on what scale. Let's take a look at one of the major equity stories you've been hearing about and see what's going on. You'll have the context you need to understand the big picture this way.
Headlines focusing on short-term equity numbers can obscure the long-term view
A recent study shows that one in five homes purchased in 2022 is owned by a homeowner who owes more on their mortgage than the house is worth. This was a major issue during the housing market crash of 2008, but is less significant today.
Media coverage right now is based loosely on a report from Black Knight, Inc. The actual report from that source says this:
“Of all homes purchased with a mortgage in 2022, 8% are now at least marginally underwater and nearly 40% have less than 10% equity stakes in their home, . . .”
Let's talk about that for a moment, and provide the bigger picture. Black Knight's data-bound report is talking specifically about homes purchased in 2022, but media headlines don't always mention that timeframe or provide the surrounding context about how unusual of a year it was for the housing market. In 2022, home price appreciation soared, and it reached its max around March-April. Since then, the rate of appreciation has been slowing down.
Homeowners who bought their house last year during the housing bubble and those who paid more than market value in the months that followed are more likely to be underwater. The qualifier marginally indicates another key piece of the puzzle that is rarely discussed in media coverage.
For those who purchased a home in 2022, it's important to remember that owning a house is an investment that lasts a lifetime, not just a few years. When headlines focus on the short-term view, they're not necessarily providing the full context.
When you own a home, the more time you spend living in it, the more equity you gain. But with current market conditions, you may not have gained significant equity right away if you owned the home for just a few months. But it’s also true that many homeowners who recently bought their house are unlikely to be looking to sell quite yet.
As with everything, knowing the context is important. If you have questions about real estate headlines or about how much equity you have in your home, let’s connect.
