CoreLogic analyzed national homeowner equity. This equity grew in the 4th quarter of 2020 by $1.5 trillion or 16.2 percent year-over-year. The study was done on homeowners who have mortgages on their homes.
In the fourth quarter of 2020, we also saw the number of mortgaged residential homes with negative equity decreased by 8 percent from the previous quarter. And when we compare this to the same quarter in 2019, the decrease is 21 percent.
We define equity as the value of your home less the amount of your mortgage owed. In reverse, negative equity would mean more mortgage than what the home is worth. Appreciation is the dynamic that moves your home equity to a positive number.
According to the National Association of REALTORS®, on a national basis, the annual price growth over the last ten years has been 6.4 percent. Over the last five years, it has grown 7.3 percent annually. And according to CoreLogic’s Home Price Index, December 2020 home prices were up 9.2 percent over the previous year.
Frank Nothaft, Chief Economist for CoreLogic, is quoted as saying “the amount of home equity for the average homeowner with a mortgage is more than $200,000.”
The equity in your home is a significant component of your net worth. In a Survey of Consumer Finances, they report the median homeowner has 40 times the household wealth of a renter: $254,000 compared to $6,270. In the 2019 Survey of Consumer Finances by First American, housing wealth is the single biggest contributor to the increase in net worth across all income groups.
This study also showed that housing wealth represented nearly 75 percent of the total assets of the lowest-income households. For mid-range homeowners, it represented 50-65% of total assets and 34 percent of total assets for the highest income household.
Renters do not benefit from home value appreciation or mortgage amortization. Both factors contribute significantly to home equity and result in net worth. Use my Rent vs. Own FREE download to examine what a down payment can grow into in seven years.
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