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Equity Cushion May Prevent Another Housing Crisis

Friday, July 10, 2020   /   by Erik Bjorklund

Equity Cushion May Prevent Another Housing Crisis

equity reports have not been particularly interesting over the last few years.
Home prices kept rising, owners kept whittling down their loan-to-value (LTV)
ratios and avoiding the serial cash-out refis we have seen in earlier boom
times. With
the current crisis, an equity buffer becomes pretty important. The narrow
margins that allowed mortgaged homeowners to quickly plunge underwater when
home values dropped in the Great Recession cost many their homes. Equity not
only allows a homeowner more options - refinancing into a lower cost mortgage,
flexibility in selling the house or in negotiating a loan modification - but also
gives them an incentive to stay in the home. CoreLogic
reports that home prices, as yet unaffected by the COVID-19 pandemic, continued
to rise in the first quarter of 2020, pushing home equity higher. Nationwide,
homeowners with a mortgage, roughly 63 percent of all homeowners, saw their
equity increase by 6.5 percent since the first quarter of 2019, a $9,300 per
household increase, and an aggregate of $590
billion nationally. States with the largest gains include Idaho, where in the
first quarter equity grew by an average of $24,400, Washington, with an average
of $20,800 and Arizona at $19,900.



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