By June 2021, consumer confidence had risen to its highest level since the onset of the pandemic. This positive sentiment was echoed by current mortgage holders in a recent CoreLogic consumer survey, which found that 59% of respondents feel extremely confident in their ability to keep current on their mortgage payments in the coming year.
Thanks to ongoing government provisions, increased vaccine availability — enabling many to return to work and a steady income — and record homeowner equity gains, most borrowers have been able to remain current on their mortgage payments. Additionally, the majority of borrowers that fell behind on payments have a large home equity cushion that will help them avoid foreclosure.
“The growth in homeowner equity provides a strong financial cushion for tens of millions Americans. For those most impacted by the pandemic, equity gains will help play a critical role in staving off foreclosure,” said Frank Martell, president and CEO of CoreLogic. “Based on projected increases in economic activity and home values over the next year, we expect to see further gains in equity and a corresponding drop in negative equity, forbearance rates and foreclosure.”
“Home equity wealth is at a record level and will bolster economic activity in the coming year,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Higher wealth spurs additional consumer expenditures and also supports room additions and other investments in homes, adding to overall economic activity.”
Negative equity, also referred to as underwater or upside down mortgages, applies to borrowers who owe more on their mortgages than their homes are currently worth. As of the second quarter of 2021, negative equity share, and the quarter-over-quarter and year-over-year changes, were as follows:
- Quarterly change: From the first quarter of 2021 to the second quarter of 2021, the total number of mortgaged homes in negative equity decreased by 12% to 1.2 million homes, or 2.3% of all mortgaged properties.
- Annual change: In the second quarter of 2020, 1.8 million homes, or 3.3% of all mortgaged properties, were in negative equity. This number decreased by 30%, or 520,000 properties, in the second quarter of 2021.
- National aggregate value: The national aggregate value of negative equity was approximately $268 billion at the end of the second quarter of 2021. This is down quarter over quarter by approximately $5.2 billion, or 1.9%, from $273.2 billion in the first quarter of 2021, and down year over year by approximately $18.9 billion, or 6.6%, from $286.8 billion in the second quarter of 2020.
Because home equity is affected by home price changes, borrowers with equity positions near (+/- 5%) the negative equity cutoff are most likely to move out of or into negative equity as prices change, respectively. Looking at the second quarter of 2021 book of mortgages, if home prices increase by 5%, 160,000 homes would regain equity; if home prices decline by 5%, 211,000 would fall underwater.
Methodology
The amount of equity for each property is determined by comparing the estimated current value of the property against the mortgage debt outstanding (MDO). If the MDO is greater than the estimated value, then the property is determined to be in a negative equity position. If the estimated value is greater than the MDO, then the property is determined to be in a positive equity position. The data is first generated at the property level and aggregated to higher levels of geography. CoreLogic uses public record data as the source of the MDO, which includes more than 50 million first- and second-mortgage liens, and is adjusted for amortization and home equity utilization in order to capture the true level of MDO for each property. Only data for mortgaged residential properties that have a current estimated value are included. There are several states or jurisdictions where the public record, current value or mortgage data coverage is thin and have been excluded from the analysis. These instances account for fewer than 5% of the total U.S. population. The percentage of homeowners with a mortgage is from the 2019 American Community Survey. Data for the previous quarter was revised. Revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results.
