California has the lowest level of “underwater” homeowners in the nation.
CoreLogic calculated that 0.6% of California’s mortgages in the second quarter were larger than the value of the home backing the loan. Nationally, 1.8% of home loans are what industry insiders call underwater mortgages. Studies show borrowers in these situations are more likely to default on a loan in tough financial times.
Helping to lower these potentially worrisome loans was California’s growth in home equity in the past year. The amount of home value above the typical California mortgage’s outstanding balance grew by $117,000 over 12 months. That’s a gain topped only by Hawaii’s $129,800 and was followed by Florida’s $100,000. Nationally, equity rose by $60,000 in a year.
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Rising homeowner equity creates a buffer for borrowers against financial hardships such as job loss. And it can give homeowners financial flexibility to borrow against their equity to finance large purchases, such as home improvement projects, or pay off high-interest debt — a powerful tool as interest rates climb on revolving debt like credit cards.
That works out to $3.6 trillion in equity gained by U.S. homeowners with a mortgage, which represents about 63% of all homes, the Irvine-based real estate data company said.
Average homeowner equity jumped 25% from the second quarter of last year and rose 6.6% from the first three months of this year. That’s a smaller year-over-year and quarterly increase than in the first three months of 2022, reflecting a more moderate pace of home price growth as the housing market has cooled amid sharply higher mortgage rates.
For example, sales of previously occupied U.S. homes fell in August for the seventh month in a row, according to the National Association of Realtors. Home prices, which surged around 20% earlier this year, have been rising more slowly. The national median home price rose 7.7% in August from a year earlier to $389,500, according to the NAR.
Home price growth is likely to continue to slow. CoreLogic forecasts that home prices will increase by 5% over the next year.
“This slowdown in price growth will slow home equity gains,” said Molly Boesel, an economist at CoreLogic.
Associated Press and Jonathan Lansner of the Southern California News Group contributed to this report.
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