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Home Price Appreciation as a ‘Double-Edged Sword’

A new analysis by digital homeownership platform Knock has found that as the nation's double-digit home price appreciation has pushed homeowner's equity to record highs, it is not necessarily good news for all homeowners.

While the nation's recent home price has boosted homeowners struggling with underwater mortgages, for others, the housing boom fueled by low rates and the pandemic have resulted in higher tax burdens.

Knock’s analysis focused on the impact of home price appreciation, unemployment rates, debt-to-income ratios, income inequality, and the length of the foreclosure process on real estate-owned (REO) transactions, found that those already struggling to meet their mortgage payments are at the greatest risk of losing their home to foreclosure as property taxes rise.

Theses forces have driven up REO foreclosures in states including Virginia, Georgia, and New York throughout 2021, while they've fallen in New Jersey, Mississippi, Delaware, Connecticut, and New Mexico.

"Home price appreciation has become a double-edged sword," said Knock Co-Founder and CEO Sean Black. "Until recently, lack of home price appreciation has been attributed to underwater mortgages and high foreclosure rates, but in 2021 upticks in foreclosures are more a result of rising home values pushing at-risk homeowners over the edge with increased tax burden. Going forward, property tax increases may exacerbate foreclosure rates in states where unemployment, income inequality and debt-to-income ratios are prevalent."

The study found that in 2021, homeowners in Virginia, Georgia, and New York—states with the largest increases in foreclosures—saw property values appreciate between 18-21%, while property taxes increased 9%,14%, and 21% on average, respectively.

“Because property tax assessments utilize recent home sale values as the basis of their assessments, many homeowners are seeing their tax bills skyrocket due to the increase in market values,” said the report.

During this same period, the states that have historically topped the foreclosure rankings saw their home values return to their pre-Great Recession peaks, after only beginning to grow in line with the national average in 2019. From 2019 to 2021, home prices appreciated on average year-over-year 22% in Connecticut, 20% in New Jersey, 19% in Delaware, and New Mexico, and 14% in Mississippi, nearly 15 to 20 times the growth averages accumulated in the prior decade.

Over the 10-year span from 2009-2019, home prices in Connecticut were still 11% below their peak price in 2008, while Delaware remained down 6%. During this same time, home appreciation in New Mexico (11%), New Jersey (10%), and Mississippi (8%) grew slower than the national average of 23%.

Click here to review more on the analysis from Knock.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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