Underwater homes down in metro Chicago

by Jason Porterfield

Aerial view of a modern houses in a new housing development.

Homes across the U.S. gained equity at a higher rate at the end of last year than at any point in seven years, and the number of underwater mortgages in the Chicago area fell, according to CoreLogic’s Home Equity Report for the fourth quarter of 2020.

Nationally, homeowners with mortgages saw their home equity increase by 16.2% year-over-year from the fourth quarter of 2019. The average gain was $26,300 per homeowner, representing the highest since the fourth quarter of 2013. Collectively, U.S. homeowners gained more than $1.5 trillion in equity.

In Illinois, year-over-year equity gains per borrower averaged $17,000, eclipsing the $16,000 average gains CoreLogic reported for the third quarter of 2020. In the Chicago-Naperville-Arlington Heights metro area, 6.1% of homes with mortgages were in negative equity, meaning they owe more than their homes are worth on the market. That number is down from 6.9% in the third quarter of 2020.

CoreLogic attributed the generally positive news to the low supply of homes nationwide. Competition for those reaching the market pushed prices higher and gave homeowners a buffer against the financial strains of the COVID-19 pandemic. The equity gains cut the chances of homes falling underwater and distressed sales hitting the market.

“Compared with a year earlier, home prices in December 2020 were up sharply — 9.2%, according to the CoreLogic Home Price Index — boosting the amount of home equity for the average homeowner with a mortgage to more than $200,000,” said CoreLogic chief economist Dr. Frank Nothaft. “This equity growth has enabled many families to finance home remodeling, such as adding an office or study, further contributing to last year’s record level in home improvement spending.”

Nationally, the number of mortgages in negative equity fell by 0.8% from the third quarter of 2020 to 1.5 million homes — or from 3.6% to 2.8% of all mortgaged properties. Year-over-year, the number of mortgaged properties that were underwater fell by 21%, or 410,000, from 1.9 million homes in the fourth quarter of 2019.

The national aggregate value of negative equity was about $280.2 billion at the end of the fourth quarter of 2020, representing a 1.2% quarter-over-quarter decrease from $283.6 billion and a 2.6% year-over-year decrease from $287.7 billion. Because equity fluctuates with home prices, borrowers within 5% of the negative equity cutoff could see their properties move into or out of positive equity. Based on data from the fourth quarter of 2020, a 5% price increase would enable 216,000 homes to regain equity, while a 5% price degrease would drop 292,000 homes into negative territory.

Nationally, the 10 states with the largest average equity gains were California, at $54,500; Idaho, at $48,500; Washington, at $47,200; Montana, at $40,000; Hawaii, Rhode Island and Utah, at $39,000; Massachusetts, at $38,000; and Arizona and New Hampshire, at $36,000. North Dakota had the lowest average gain, at $8,000.

“Positive factors like record-low interest rates and a booming housing market encouraged many families to enter homeownership,” CoreLogic president and CEO Frank Martell said. “This growing bank of personal wealth that homeownership affords was noticed by many but in particular for first-time buyers who want a piece of the cake. As a result, we may see more of those currently renting start to enter the market in the near future.”

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