Home equity has been a hot topic in real estate news lately. And if you’ve been following along, you may have heard there’s a growing number of homeowners with negative equity. But don’t let those headlines scare you.
In truth, the headlines give you only some of the information you need to understand what’s happening and at what scale. Let’s break down one of the significant equity stories you may see in the news and what’s taking place. That way, you’ll have the context you need to understand the big picture.
Headlines Focus on Short-Term Equity Numbers & Fail To Convey the Long-Term View
One piece of news circulating focuses on the percentage of homes purchased in 2022 that are currently underwater. The term underwater refers to a scenario where the homeowner owes more on the loan than the house is worth. This was a huge issue when the housing market crashed in 2008, but it’s much less significant today.
Media coverage is based loosely on a Black Knight, Inc report. 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 unpack that for a moment and provide the bigger picture. The data-bound report from Black Knight talks specifically about homes purchased in 2022. Still, media headlines don’t always mention that timeframe or provide the surrounding context about how unusual the year 2022 was for the housing market.
In 2022, home price appreciation soared, reaching its max around March-April. Since then, the rate of appreciation has been slowing down.
Homeowners who bought their house last year right at the peak or those who paid more than market value in the following months are more likely to fall into the category of being marginally underwater. The qualifier marginally is another key piece of the puzzle. The media isn’t necessarily included in their coverage.
So, what does that mean for those who purchased a home in 2022? When headlines focus on the short-term view, they do not provide the full context. It’s important to remember owning a home is a long-term investment, not a short-term play.
Typically, the longer you stay in your home, the more equity you gain as you pay down your loan and as home prices appreciate. With current market conditions, you may have gained little 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 likely to be looking to sell later.
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.
