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Equity-rich homeowners are ‘sitting pretty’ amid sky high real estate prices

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As of the last quarter of 2021, 42% of residential properties with an underlying mortgage were considered equity rich, according to a report from Attom, a real estate data company. That was up from 30% in the fourth quarter of 2020.

“As home prices kept rising, so did the equity built up in residential properties, to the point where close to half of all mortgage payers around the country found themselves in equity-rich territory,” said Todd Teta, chief product officer with Attom.

Only 3% of loans were seriously underwater, a situation in which the homeowner owed at least 25% more on their loans than the home is worth, Attom reported.

Rising home equity is an indication of the strength and stability in the housing market even as prices rise to the stratosphere. At the end of last year, equity-rich homes outnumbered those that were seriously underwater by 13 to 1, according to the report.

While no one is certain about how long the boom can last, the strong equity picture is good for the economy and homeowners, said Teta.

“For now, homeowners are sitting pretty as the wealth they have tucked away in their homes keeps growing,” he said.

Rising prices, rising equity

Median home prices rose well above $300,000 and typical home values spiked more than 10% across most of the country last year. Those rising prices helped widen the gap between what homeowners owed on their mortgages and the value of the properties, the report said.

The biggest increases in the share of equity-rich homes were seen in the South and the West.

Tennessee, where the portion of mortgaged homes considered equity-rich rose from 41.4% in the third quarter to 47.2% in the fourth quarter, saw the biggest jump followed by North Carolina, Nevada, Georgia and Arizona.

The top equity-rich city was Austin, Texas, with 70.6% of mortgage holders equity-rich, followed by Boise, Idaho; San Jose, California; Spokane, Washington; and Salt Lake City, Utah.

The cities with the fewest equity-rich properties, according to the report, included Jackson, Mississippi, where only 17% of homes are equity-rich, Baton Rouge, Louisiana, and Wichita, Kansas. These three cities also had the most mortgages seriously underwater.

The biggest drops in the share of properties that were seriously underwater were found in the South and Midwest, according to the report.

Mississippi saw the biggest decline in mortgaged homes that were seriously underwater, dropping from 17.7% in the third quarter to 12.2% in the fourth quarter. It was followed by Maine, Iowa, West Virginia, and Arkansas.

There were some states where the share of homes that were seriously underwater rose, including Wyoming, which rose from 11.5% to 14.3% quarter-over-quarter, followed by Connecticut, Arizona and Utah.

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