For the millions of Americans who own their homes, their properties are typically their biggest source of wealth. The good news? Those assets have grown in value over the past year thanks to rising home prices.
The typical American homeowner saw their home equity rise by $20,000, or 6.8%, through the end of the third quarter compared with a year earlier, according to a new analysis from real estate data firm CoreLogic.
Despite a fierce headwind in the form of the highest mortgage rates in two decades, average home prices have jumped about 9% this year, according to the National Association of Realtors. That has boosted the value of homeowners' equity, or the difference between how much a home is worth and the remaining amount due on a mortgage.
Home equity is a key to building wealth because it can provide a property owner with a way to tap the value of their home, such as through a home-equity line of credit. And when they sell their home, the property owner will pocket more money after paying off their mortgage.
"Home equity growth is driven by home price growth, and so we have had a lot of growth this year, considering everything else that is going on in the housing market," Selma Hepp, chief economist at CoreLogic, told CBS MoneyWatch.
"When people have more equity in their homes, they feel wealthier," she added.
Building home equity also provides a buffer in event of financial emergencies and gives owners another source of assets to draw on when major expenses arise, such as paying for college or making home repairs.
While the typical homeowner in most U.S. states saw their equity jump this year, property owners in some parts of the country lost ground, according to CoreLogic.
Property owners in Texas on average lost about $9,000 in home equity compared with a year ago, the study found.
The reason, Hepp said, is partly due to softness in the Austin real estate market, which saw a huge run-up in prices during the pandemic. Even with the dip, Texas homeowners continue to have significant equity in their properties, at an average of $217,000 each, CoreLogic noted.
Two other states saw home equity declines during the past year: New York (where equity fell $7,525 on average) and Utah (a loss of $873). Even so, homeowners in those two states have average equity of $364,000 and $348,000, respectively.
"Home price growth matters, and this is whether the changes in home prices are playing out," Hepp noted. "In Texas, we have seen home price declines, particularly this year."
States with the biggest home equity gains
Meanwhile, homeowners in Hawaii, California and Massachusetts — among the priciest states for residential real estate — saw the biggest gains in 2023.
They're also the states where property owners already have some of the highest equity in their homes. For instance, the typical Hawaii homeowner has about $717,000 in equity, while Californians on average have equity of about $634,000, CoreLogic said.
Homeownership can provide a path to greater wealth, with a Federal Reserve report noting that the 66% of Americans who own their own properties saw their equity rise from $139,100 in 2019 to $201,000 in 2022.
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