California housing’s stumble off its pandemic peak means an owner with a mortgage lost $59,600 of equity in the past year.
Please do not forget that falling home prices are good news for house hunters. And this stat tracked by CoreLogic is more evidence this year’s housing market started with some noteworthy discounting.
These losses were found in my trusty spreadsheet’s look at CoreLogic’s calculations of homeowner “equity” – that’s the gap between what’s owed on a home and the property’s estimated value. CoreLogic tracked this wealth for owners with home loans in 46 states and the District of Columbia. (Stats were unavailable for South Dakota, Mississippi, Vermont and West Virginia).
Look, the current homebuying climate is saddled with seriously low housing affordability tied to soaring mortgage rates. Those financial hurdles sharply pruned the pool of qualified buyers. Thus, values dipped.
And it’s not just California. Home equity dropped in 13 others states plus D.C. for the year ended in the first quarter. The average U.S. dip of $5,400 was the first such decline since 2012.
Western weakness
Consider the west-of-the-Rockies spin of the 12-month decline in equity. It’s a noteworthy reversal for what was one of the nation’s hottest regions during the peak buying binge during the pandemic.
Only Washington state’s $74,300 equity drop was larger than California’s decline. Next came Utah, off $37,700, Nevada, off $32,800 and Idaho, off $32,500.
Or look at the tumbles on a percentage basis: California’s 9.7% drop was topped only by Washington (off 15%), Nevada (off 11%), Idaho (off 11%) and Utah (off 10%).
The fall for the entire U.S. was 0.7%. By the way, thinking of California rivals, Texas equity was flat (rising a mere $100). And Florida had a $24,500 gain – the No. 2 jump nationally behind only Hawaii’s $24,900.
What’s left?
Does this falling equity signal some big challenges ahead for mortgaged homeowners?
By this math, the typical homeowner with a mortgage has plenty of financial cushion in their home values.
In California, there’s a $558,000 gap between a home’s value and its mortgage – equity exceeded by only Hawaii’s $675,800. After California was Washington at $405,300, Massachusetts at $380,600 and D.C.’s $357,100.
Nationally, $274,000 of equity remains. In Texas, it’s $214,200 (No. 27), and Florida has $286,700 (No. 13).
But remember, this equity estimation does not include the hefty transaction costs required to turn a home’s paper profits into spendable cash.
What’s underwater
Consider another yardstick of potential financial trouble: the share of mortgaged owners who are “underwater” – a worrisome spot when home loans exceed a property’s value.
California had the nation’s smallest share of these at-risk mortgaged owners at just 0.9% of all homes vs. 2% nationwide.
Other places with few underwater owners include Alaska and Arizona at 1.2%, and Florida, Illinois, Indiana and Nevada at 1.3%. Texas was No. 31 at 1.7%.
The trouble spots include Louisiana with 7% of mortgaged owners underwater, then Iowa at 5.4%, Oklahoma at 4.2%, Arkansas at 3.7% and Kentucky at 3.6%.
Bottom line
Despite this first-quarter value slippage, California house hunters shouldn’t bet on deep discounts created by a wave of panic selling by troubled borrowers.
Selma Hepp, CoreLogic’s chief economist, noted the modest scale of recent drops in California values. In San Francisco, for example, an eye-catching equity loss of $174,000 left that market’s average owner with home values still $1 million above the outstanding mortgage.
“As a result of relatively larger home price declines in California’s coastal metros over the last year, California’s homeowners with a mortgage did lose some of the equity from last spring,” she said. “While equity has declined from last year’s peak prices, this spring’s price gains suggest that homeowners are once again regaining some of the lost equity.”
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
