Home Equity Declined in First Quarter for Many Americans

The first quarter of 2023 brought a drop-off in home equity for many Americans, new data shows. 

The portion of mortgaged homes that were equity-rich, meaning the combined estimated amount of loan balances was no more than 50% of the estimated market value, dropped from 48% to 47.2% in the first quarter.

It was the second straight quarterly decline in equity-rich homes across the U.S., following 10 consecutive quarterly gains, according to Attom, a real estate data analytics firm. 

The portion of equity-rich home buyers declined in the first quarter from the fourth quarter in 32 states, as price growth in the U.S. housing market slows or reverses.

“Homeowners across the U.S. continue to sit in a far better position than they were just a few years ago, with historically elevated levels of wealth built up in their properties," said ATTOM Chief Executive Officer Rob Barber. "However, the recent downturn in the housing market is chipping away at the bounty they reaped from a decade of price surges. Home equity has fallen modestly amid a larger slump in profits homeowners are getting when they sell."

Barber said it's still too early to tell if the trend is long-term. "There are reasons to hope for a market turnaround this year," he said. "For now, though, various measures suggest that the best of the boom may be behind us.”

Home buyers have been discouraged by market conditions, including a lack of homes for sale. Many would-be sellers feel locked in to the low interest rate they got when they purchased their home, leading to low inventory and limited options. Although average rates are on a modest decline, concerns over the Federal Reserve’s response to inflation, bank instability and home prices are hindering the process for many. 

The biggest drops in home equity came in the West. Arizona led first quarter declines, where the portion of mortgages considered equity-rich fell to 56.4% from 59.9% over the quarter. Nevada, Idaho, Utah and Washington followed.

The portion of mortgages that became more equity-rich increased the most in the South. Mortgages in New Mexico, Kentucky, Mississippi and Oklahoma all became more equity-rich. 

A tenth of recent home buyers were found to be underwater on their mortgages, meaning they owe more than their house is worth, according to data firm Black Knight. The figure has been on the rise since 2021, as potential home buyers looked to Federal Housing Authority and Veterans Administration loans that require smaller down payments to try and cut costs. 

Attom data found that 3% of homes were considered “seriously underwater,” in the first quarter, meaning the homeowner’s combined estimated balance of loans were at least 25% more than the property’s estimated market value. The figure is down from 3.2% in Q1 of 2022.