While three in five homeowners with a mortgage (60.2%) report that the equity in their homes has increased since 2013, including most of those who bought before prices bottomed out in 2009 (57.5%), less than half (46.2%) of homeowners expect their equity to increase in 2016. Those expecting an increase anticipate their equity will rise an average of 8.8 percent, according to new research by loanDepot.
Owners who bought their homes after prices bottomed in 2009 (49.8%) are more bullish on their near-term prospects for equity growth than those who bought when prices were higher, pre-2009 (43.4%). Post-2009 owners who expect their equity to rise this year anticipate an average of 14.29 percent growth compared to 11.57 percent for longer term owners. More post-2009 owners (63.9%) than pre-2009 owners (57.5%), report their equity has increased over the past three years.
EQUITY BOOM: PERCEPTION VS REALITY
The research also found that while 57 percent of homeowners believe their home’s value has appreciated during the past three years, the majority are underestimating the amount their homes have increased in value during the housing recovery. (Q1, Q2a, Q2b). Owners who believe their homes have appreciated in value an average of only 16 percent over the past three years while the S&P Case-Shiller 20-city index shows prices have risen nearly than twice that much, 25.2 percent, from November 2012 to November 2015.
Owners may also be underestimating their equity growth. Though the loanDepot research was restricted to homeowners with a mortgage (49 million or 65.5 percent of all homeowners), according to the Federal Reserve, total US home equity rose from $7619 billion in the third quarter of 2012 to $12,365 billion in the third quarter of 2015, an increase of 62.2 percent.
UTIY WINNERS AND LOSERS
|Question or Statement||Equity increased past three years||Equity decreased past three years||What it means|
|How will your equity change in 2016?||60.8% increase2.3% decrease23.2% stay the same||23.8% increase9.6% decrease34.2% stay the same||Owners have conflicting expectations on their equity depending on how they have been faring.|
|If you expect equity to increase, by how much?||8.9% average increase||10.6% average increase||Owners who expect to gain equity this year anticipate a greater increase if they have gained equity over the past three years.|
|I’ve always been conservative about touching the equity in my home.||66.2% agree||37.8% agree||More owners whose equity is increasing are conservative on accessing their equity than those who have been losing equity.|
Three out of five homeowners (59.2%), including nearly two thirds (64.8%) of those who bought their homes before 2009, reported they now have enough equity to take out a home equity loan. At the same time, nearly one in seven (15.5%) doesn’t know how much equity they’d need to qualify for a loan and another 9.1% don’t know how to calculate the equity in their home. Home remodel (40%), saving for retirement (18%) and consolidating high interest rate debt or credit cards (29%) top the list of ways owners will use funds from a home equity loan. Only 15.9 percent of all owners, including 18.5 percent of post-2009 owners, say they don’t yet have enough equity to take out a home equity loan.
Approximately 8.9 million homes, or 17.6 percent of the 50,432,000 homes with a mortgage, had less than 20 percent equity and 1.1 million, or 2.2 percent, had less than 5 percent equity in the third quarter of 2015. Borrowers who are “under-equitied” may have a difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of moving into negative equity if home prices. The total number with positive equity at the end of the third quarter of 2015 rose to approximately 46.3 million, or 92.0 percent of all homes with an outstanding mortgage. Nationwide, homeowner equity increased year over year by $741 billion in Q3 2015
PRE-CRASH VS POST-CRASH: OWNERS VIEW EQUITY DIFFERENTLY
The 2001 – 2006 housing boom and 2007 – 2009 bust were watershed events than changed the way millions of homeowners think about equity. The loanDepot research reveals how those homeowners who bought before and during the boom – and watched their equity wash away from 2007 to 2009 — have very different views on equity than those who bought when prices were low after 2009. The research found:
- More pre-2009 owners believe they have adequate equity now to take out a home equity loan (64.8%) than post-2009 buyers (51.8%). However, more post-2009 buyers (49.8%) than pre-2009 owners (43.4%) believe their equity will increase in 2016.
- Post-2009 owners are more conservative on using their equity. A majority of owners from both periods say they have always been conservative about accessing their equity, but post-2009 buyers are more so by a margin of 61.5 percent vs 54.5 percent.
- Pre-2009 owners are still hurting when it comes to appreciation of home values. Some 20.9 percent of pre-2009 buyers believe their homes lost value since 2013 compared to just 8.3 percent of post-2009 buyers. (Q2aT4 Banner) Some 89.9 percent of post-2009 buyers believe their home’s value has increased since 2013 compared to 76.6 percent of pre-2009 buyers.
PRE-CRASH AND POST-CRASH OWNERS
|Question or Statement||Pre-2009 Owners||Post-2009 Owners||What it means|
|Among those whose values have changed, has the value of your house increased in the past three years?||76.6% yes||89.9% yes||Post-bust buyers have not experienced depreciation comparable to those who bought before prices fell|
|Has the equity in your home gone up over the past three years?||57.5% yes||63.9% yes||Longer term buyers are more focused on restoring lost equity.|
|If you have not gained equity, why not?||Home values in my neighborhood haven’t increased enough (48.6% agree)||Haven’t owned my home very long. (60.6% agree)||Newer owners have paid down little on principal. Long time owners want to recover lost equity through rising values.|
|Will your home’s equity increase in 2016?||43.4% yes||49.8% yes||Post bust buyers are slightly more bullish, perhaps because they have not experienced equity losses..|
|If so, by how much?||8.7% average increase||8.8% average increase|
When it comes to their equity, home owners tend to be conservative, knowing equity can help them weather down turn economic cycles. While more than half (57.6%) said they’ve always been conservative about their equity, 13.6 percent said the housing crisis has made them more conservative, including 15.7 percent of those who bought before 200. At the same time, one out of five (19%) said they have no concern about accessing their earned equity as long as they stay current on their mortgage. Just over five percent (5.7%) don’t believe keeping a high level of equity in their homes would protect them from another housing crash and 2.8 percent say they’ve waited a long time to get cash back from their homes.
HOW ATTITUDES ON EQUITY ARE CHANGING
|Question or Statement||Pre-2009 Owners||Post-2009 Owners||What it means|
|I’ve always been conservative about touching the equity in my home, my opinion hasn’t changed.||54.6%||61.5%||Some pre-2009 owners were not always conservative in their use of equity.|
|The housing crisis made me more conservative about touching positive equity gained.||15.7%||10.8%||More long term owners were changed by the crisis because they lived through it.|
|I don’t think keeping a high level of equity in your home would protect yo from another housing crash.||6.0%||5.3%||The vast majority of all owners understand the relationship between equity and protection from default.|
|I have no concerns about accessing the equity I have earned as I long as I stay current on my mortgage. (||20.2%||17.7%||One out of five owners feels safe accessing equity.|
|I’ve waited many years to get cash back and I’ll take my chances.||2.5%||3.1%||Very few owners plan to act recklessly.|