Aggregate Home Equity Rises by More than $2 Trillion Among U.S. Households

Household holdings of real estate grew much faster than the aggregate amount of mortgage debt outstanding among homeowners year-over-year, ultimately causing home equity to increase.

The Federal Reserve Board’s fourth quarter of 2015 release of its Financial Accounts of the United States and analysis by the National Association of Home Builders (NAHB) found that household holdings of real estate totaled $21.276 trillion in the fourth quarter of 2015, an increase of $1.562 trillion from the $23.713 trillion  recorded in the fourth quarter of 2014.

Over the same period, home mortgage debt outstanding increased $90.0 billion to total $9.490 trillion in the fourth quarter of 2015.

The NAHB stated, "Since the total value of household-held real estate rose faster than the aggregate amount of mortgage debt outstanding, then home equity held by households grew."

According to the reports, home equity held by households rose by $1.165 trillion, or 10.2 percent, to $12.539 trillion from the fourth quarter of 2014 to the fourth quarter of 2015. In addition, household’s home equity is now 56.9 percent of household real estate.

"As housing equity continues to grow, the proportion of households underwater continues to shrink. A household is considered underwater when the total value of the property is less than the total value of the debt(s) underlying that property," the NAHB stated. "The increase in the proportion of households with positive equity will improve their ability to sell their home and purchase a new one."

Negative equity is down to 13.1 percent nationwide, but is still a nagging problem choking real growth and limiting new inventory, according to a new report by Zillow.

The report found that six million homeowners were underwater in the Q4 of 2015. And while that number is still a problem, it is significantly lower than the peak 16 million underwater homeowners that existed in Q1 of 2012, and the 8 million underwater homeowners of a year ago. According to Zillow, the millions of underwater homeowners who have resurfaced over the past year have led to a $75 billion decline in negative equity, which has helped keep the U.S. housing market jogging along steadily. But while the overall picture is vastly improved from even just a year or two ago, there are still 820,000 homeowners who owe more than twice as much on their mortgages as their homes are worth.

“Over time, negative equity can act as an anchor on a housing market, preventing underwater homeowners from listing their homes and reentering the market,” Gudell said. “It is more prevalent in less expensive areas that are affordable to first-time buyers. Without these homes available, many potential buyers are sidelined and unable to take advantage of mortgage rates that remain near historic lows."