Homeowners throughout the U.S. are steadily building equity in their homes, although the rate at which this is occurring is decreasing.
According to CoreLogic, a top property data and analytics firm, homeowners increased equity by an average of $12,400 between the third quarters of 2017 and 2018. This is down significantly from the annual gains of approximately $16,000 between the second quarters of the same period.
While equity growth is still positive, it’s now at a two-year low.
What Caused a Change in the Third Quarter?
CoreLogic’s chief economist, Frank Nothaft, spoke about the reduced equity gains, saying that “on average, homeowners saw their home equity increase again this quarter, but not nearly as much as in previous quarters. This lower year-over-year gain reflects the slowing in appreciation we’ve seen in the CoreLogic Home Price Index.”
CoreLogic provides real estate market analysis to both private firms and entities of the U.S. government.
Analysts believe that changes in affordability have negatively impacted equity growth for the second half of this year. New homes purchased in 2018 have been subject to higher mortgage rates, due to a growing economy and steadily increasing central bank rate. Home price growth is also starting to slow, reducing potential equity gains for existing homeowners.
The third quarter is statistically the most likely time for equity withdrawals through credit and refinancing. This has likely contributed to the slowdown.
Equity is Still Growing
While equity growth is now slower, it is still positive across almost every state. Seven of the best performers were located in the western states, including California with a $37,000 average equity increase, and Washington with a $27,000 average increase. North Dakota was the worst performer with homeowners losing an average of $11,000 in their home equity year-over-year in the third quarter.
Homeowners Debt Reduction Will Become More Important
Home prices are expected to cool over the next two years, increasing the importance of debt reduction. Homeowners can make extra payments or change to shorter terms to boost equity growth. Home equity remains one of the most powerful assets in today’s financial market.
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