Windfalls from home ownership are starting to erode, although it’s too early to make predictions about the direction of the residential real estate market, says new research.
The portion of mortgaged homes seriously underwater in the U.S. rose slightly in the first quarter, to 2.7% from 2.6% at the end of 2023, according to a first-quarter 2024 home equity report by ATTOM, which evaluates real estate data. Mortgages are seriously underwater when loans against a property are at least 25% more than its market value.
As a comparison, in 2009, during the financiaƒl crisis, estimates put the percentage of homes with underwater mortgages at nearly 25%.
Another recent report on housing shows rent increases outstripping wage gains.
Different influences are impacting today’s residential real estate market, and observers disagree on whether a housing bubble is brewing.
The first-quarter ATTOM research also showed a decline in the percentage of U.S. residential properties that were “equity rich” — properties with loan balances no more than half their estimated market values. The percentage fell to 45.8% in the first quarter from 46.1%, marking the third straight quarterly decline. The result compared to 47.2% in the first quarter of 2023 and hit its lowest point in two years, ATTOM said.
Home Values and Sales
The U.S. national median single-family home and condo value slipped 4% over the winter and was up only 3% year-over-year during the first quarter, ATTOM said.
The National Association of Realtors, meanwhile, reported home-sale prices were up in 93% of measured metro areas in the first quarter, and the national median single-family existing-home price grew 5% from a year ago to $389,400. Sixty-three markets (30%) experienced double-digit annual price appreciation (up from 15% in the previous quarter).
“Astonishingly, greater than 90% of the country’s metro areas experienced home price growth despite facing the highest mortgage rates in two decades,” said NAR Chief Economist Lawrence Yun, in a press release. “In the current market, rising prices are the direct result of insufficient housing supply not meeting the full demand.”
The monthly mortgage payment on a typical, existing single-family home with a 20% down payment was $2,037 — up 9.3% from one year ago, NAR said. The top 10 most expensive markets in the U.S. were in California, led by San Jose-Sunnyvale-Santa Clara, with a median home-sale price in the first quarter of $1,840,000, up 13.7%.
Signs of Cooling
“Homeowner balance sheets continue to benefit in a huge way from the boom times in the form of elevated equity that can be used to help finance all kinds of things, from home renovations to business startups. Still, the windfalls are starting to erode bit by bit amid mounting signs that the market is no longer so super-heated,” said Rob Barber, CEO for ATTOM, in a press release.
“It’s too early to make any broad statements about the market direction, especially coming off the typically slower Fall and Winter months, he continued. “But amid the recent trends, this year’s Spring buying season will be of heightened importance in telling us if there is a new long-term market pattern developing.”
The equity-rich share of mortgages increased in 26 states over the Q1 2024, with the biggest quarterly declines in the South, ATTOM said. South Carolina was down to 40% from 42.4%; Georgia, to 43.7% from from 46%; Delaware, to 37.2% from 39.4%; and Indiana, to 40.9% from 43%.
Meanwhile, equity-rich levels rose in 23 states in the first quarter, mostly by less than one percentage point, compared with Q1 2023. The largest improvements were in the Midwest and West states, led by South Dakota, (at 51.5% from from 49.8%), Hawaii (56.5% from 55%), Montana (58.7% from 57.3%), North Dakota (31.5% from 30.4%) and Mississippi (38.3% from 37.3%).
