Homeowners gain significant equity but face challenges amid rising costs

If you own your home, do you feel richer? Like, buy-a-car or go-on-a-lavish-vacation richer?

You should: The average homeowner saw a gain of $25,000 in home equity during the year ending in June, according to a newly released study by CoreLogic.

Since home price growth has continued to fuel overall equity gains, homeowners now average about $315,000 in equity—that’s $129,000 more than they had at the onset of the COVID-19 pandemic.

The top three states with the most annual equity gains were Maine, up $58,000; California, up $55,000; and New Jersey, up $53,000.

That comes as no surprise to New Jersey real estate agent Lukasz Kukwa of eXp Realty in Montclair. He says the market there is still active.

“New Jersey homes that are priced and marketed effectively still attract multiple offers and bidding wars are still common, with some properties selling for hundreds of thousands above the asking price—even in the current interest rate environment,” he says.

However, three states posted annual equity losses: Texas down $2,600; Oklahoma down $7,700; and North Dakota down $8,400.

Residential properties with mortgages in the U.S. collectively gained $1.3 trillion in equity over the past 12 months or 8% year over year. This brings total equity on mortgaged properties to more than $17.6 trillion at the end of Q2 2024.

“The increase in home equity has definitely been a major financial advantage for homeowners,” says Robert Shepherd, CEO at Peak & Home Partners in Rockville. “Equity builds wealth over time which not only increases net worth but also provides flexibility and options in the future.”

The substantial accumulation of home equity for homeowners has served as an important financial buffer in times of uncertainty according to CoreLogic Chief Economist Selma Hepp. Some homeowners facing higher costs of insurance and taxes have had to tap their equity to prevent falling behind on their mortgages.

“As a result mortgage delinquency rates have remained at historical lows despite inflationary pressures and higher costs of almost all nonmortgage homeownership-related expenses,” explains Hepp.

This week the average rate on 10-year fixed home equity loans decreased to 8.61%.

“With rates going down I think we’re going to see an increase in home equity loans and HELOC activity as people feel more comfortable borrowing against their homes again,” says Shepherd. “For clients who’ve built up equity it can be a smart move especially if they’re looking to consolidate higher-interest debt or fund a new investment.”

However there are risks involved.

“Defaulting on a home equity loan can result in foreclosure so that’s something people need to be very mindful of,” says Shmuel Shayowitz president and chief lending officer at Approved Funding in River Edge NJ.

In addition HELOCs are interest-only and come with variable rates.

“That’s OK in this market because the Fed is poised to cut,” says Shayowitz. “But three years ago people who had HELOCs saw their rates triple with all the Fed hikes—so that’s another big risk.”