Five States With the Most Home Equity
What is home equity? The answer is more straight forward than you may think. Home equity is an asset. It comes from the interest in a homeowner’s property. In simple terms, your home equity is the portion of your home you actually own. Technically, you already own the home once you have purchased it, but until the loan you used to buy your home has been paid off, your lender also has an interest in the property.
You can calculate how much your home equity easily. Simply subtract your outstanding loan balance from the present market value of your property to arrive at the figure. For example, if you bought a property for $200,000, made a down payment of 20 percent and took out a loan to cover the remaining $160,000, the home equity you own would be $40,000. At the end of the day, the more you pay off your loan balance, the more your home equity will increase.
When is a home equity-rich?
The term “equity-rich” is used for homes when the debt the property has secured is equal to half or less of the residence’s market value. For instance, a home valued at $400,000 would be required to have a maximum debt of $200,000 in order to meet the threshold for an equity-rich home. Homeowners can also increase their home’s value with professional or DIY repairs and renovations.
More homeowners in the United States are holding equity-rich property. A report by ATTOM Data Solutions showed 13.6 million properties in the country were equity-rich in the second quarter of 2018. This represents 24.5 percent of all homes with a mortgage in the United States.
The reason equity-rich properties are on the rise is twofold. Firstly, valuations and property prices are becoming higher in many areas of the United States. Secondly, more people are becoming reluctant to borrow money against their homes.
The Five States With the Most Home Equity
Certain states certainly have higher equity-rich homes than others. Certain regions of the country are also more equity-rich than others. In fact, out of the top five states with the most equity-rich homes, four are located in the west of the United States. The odd one out is New York.
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After the housing collapse of 2007 to 2011, it is good to see states doing so well. Here are the five states with the most home equity as of writing:
- Oregon comes in fifth place, at 32.8 percent.
- New York is fourth, at 33.2 percent.
- Washington is third, at 34.5 percent.
- Hawaii takes second place, at 38.3 percent.
- California comes in first place, at a whopping 43.5 percent.
California has pulled out of the carnage of the housing bubble collapse particularly well compared to the rest of the country. Most homes in the state are worth hundreds of thousands of dollars. Not only are over 43 percent of homeowners in California equity-rich, but fewer than four percent of homeowners in the state also have mortgages deeply underwater.
What does the term “underwater” mean when talking about real estate? Quite simply, an underwater mortgage is a loan for buying a home with a higher principal than the valuation of the property. The national average for properties that are underwater is 10 percent on average.
Homeowners in the state of California saw an average gain of $48,800 in home equity in the second quarter of 2017 to the second quarter of 2018, whereas the average home equity for homeowners in the country for the same period was $16,200. This is three times less compared to the Golden State.
States With the Most Equity Gains
As of writing, several states have seen a surge in housing equity. Although these states are unable to match the current top five, these states may rise and claim a spot on the top five list in the future.
The first state experiencing growth in home equity is Colorado. The increase in Colorado home equity is not new. Part of the home equity growth is attributed to homeowners remodeling homes throughout the Centennial state, converting basements into small apartment rooms to rent out. This strategy is especially popular among first-time homebuyers, who rent out the renovated apartments to help pay their mortgage, allowing them to buy homes normally outside of their price range.
Massachusetts is experiencing a surge in home equity as well. Equity is increasing in Massachusetts from homeowners fortifying their homes against the cold weather. Some of the biggest changes to Massachusetts homes include the installation of oil boilers, radiator systems and heating cables along the roof. As part of reinforcing against the cold weather, Massachusetts homes are also adding better fire protection.
Utah is one of the states with the largest home equity increase, with some homes in Salt Lake City alone jumping upwards of eight or more percent over a year. Utah homeowners are installing swamp coolers to help combat the desert climate. While Utah is known for warm weather, it still experiences harsh winters, so more homeowners are installing heating cables on the roof to melt snow and keep ice from building up.
What is the bad news?
It is not all good news. Some homeowners are seeing falling property valuations. From the second quarter of 2017 to the second quarter of 2018, 2.2 million mortgaged residential homes in the United States were in negative equity positions. This is about 4.3 percent of all mortgaged residential properties. The worst-off states for seeing equity levels fall were North Dakota, Louisiana and Connecticut.
Rising home prices are a double-edged sword situation. They are great for homeowners who are gaining more home equity wealth. However, rising property prices can be bad news for people who are not yet on the property ladder and want to buy their first home affordably.
More than 5.5 million properties in the United States were severely underwater in the second quarter of 2018. Properties considered to be underwater have a collective debt load secured against the home at least 25 percent higher than the estimated market value of the property. For example, a property valued at $400,000 would carry a debt of at least $500,000.
An underwater situation also means homeowners might not be able to have any equity available to use as credit. An underwater mortgage can sometimes prevent borrowers from selling or refinancing their properties as well.
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