The past two years have been interesting to say the least, and the real estate world was definitely not exempt from any of the changes. The pandemic caused tidal waves businesses of all kinds braced themselves for, with social distancing, closures and mandates impeding on what we would otherwise consider normal. Although the economic impacts are showing signs of recession, the growth rate of home prices is still expected to remain high and increasing.

Of the last six recessions, only two experienced a rise in home prices, one of which being the recession that started March of 2020. This pattern follows the recessions of April 2001, where after the first ten months home prices still continued to increase. The Great Recession of 2008 was the worst of the last six, but is also characterized by the excess supply of homes for sale. In today’s market, this is not the case. Our tight-supply housing market makes for a competitive environment stimulating growth and healthy activity.

Equity Breakdown:

Homeowner’s Equity has shown immense improvement with growth of 31.1%, or $3.2 trillion, since the third quarter of 2020. This applies to homeowners with mortgages, which represents roughly 63% of US properties.

Negative Equity fell in the third quarter of 2021 by 5.7% from the second quarter of 2021, representing about 1.2 million homes. Year over year, negative equity fell by 28.9%, from 1.6 million homes, or roughly 3% of all mortgaged properties.

The price of homes affects home equity, leaving borrowers with +/- 5% of the equity cutoff more likely to fall into negative equity with the change in prices. For example, if we were to consider the third quarter of 2021 and national mortgages, if home prices increase by 5%, 145,000 homes would regain equity; if home prices decline by 5%, 191,000 would fall negative.

The gains in homeowners’ equity has helped prevent foreclosures nationally. This summer alone the US saw the highest rate of growth in home prices in over 45 years, pushing equity gains to another record high in the third quarter of 2021. The summer’s market activity allowed over 70,000 homes to regain equity and over 1.2 million homes avoid forbearance at the end of September.

Investment Analysis:

Home equity gains, driven by growth in home prices, have enabled many to continue, or begin, building their wealth. As of September 2021, home prices were up 17.7% year over year, fueling the record gains in home equity. As home prices are not expected to decline or stagnate in the near future, we can expect future gains in homeowners’ equity.

On a national level, negative equity grew 3% from last quarter but has fallen 2.9% from last year. Nationally 2.1% of all mortgaged properties have negative equity, and Colorado specifically has a 1.5% negative equity share. This indicates a healthy market and is attractive to buyers as this creates higher levels of competition and investment security in the market.

Denver has become one of the most attractive housing markets in the US, with housing stock ranked in the top ten of all cities across the country. This alone attracts market activity, but Denver is also one of the least challenged with negative equity share. Compared to New York City with 2.8%, Chicago with 4.7%, and Miami with 3.1%, Denver’s share of only 1.4% can be considered a victory.

In the third quarter of 2021, the national average increase year over year in homeowners’ equity was $56,700. In the state of Colorado this was an average of $78,000. California experienced the highest increase of $119,000, and North Dakota with the lowest of $15,400.

What does this mean for homeowners?

Although we are still experiencing economic struggle, the housing market will remain active and busy. The pandemic delayed the typical “spring-fever home buying season” to summer trickling into fall, and with low interest rates motivating buyers to act, the national supply of homes has fallen to its lowest since 2000. This means that demand is still high, and inventory is low, making it a fantastic marketplace for any seller.

Additionally, work-from-home positions are becoming more appealing and more permanent in some peoples’ lives, increasing the amount of attention on the topic of “home” nationwide. The market saw more activity in home sales, renovations, and interior design projects in 2021 than we may have ever seen before. As a realtor, the concept of “home” will always matter. But with more people investing in their homes and their own space, this as an opportunity to bring people a meaningful connection.

**Data/Info provided by CoreLogic