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Changes in Value of Household Real Estate – Q1 2022 – Realtor.com News

Last week, the Federal Reserve released its Flow of Funds data. This showed that rising home prices propelled home equity, a contributor to the wealth of homeowners, to a new high.  The total value of owner-occupied real estate registered $41.2 trillion. Tempering this good new, a decline in financial assets and increase in debt reduced overall net worth for households and non-profit organizations by $6.1 trillion in the quarter.

Here’s what we learned:

The value of homes hits yet another new high

For over a decade, home prices have climbed consistently, with an acceleration to double-digit pace over the most recent two years. While the more recent pace of home price growth is slower, this still translated to a new high median price at summer’s peak. Additionally, although home building has ebbed sharply from its most recent high-pace, it also continues to add to the total value of household real estate. These factors combined to push the total value of owner-occupied real estate, the value of all homes owned by those living in them, to a new high of $41.2 trillion. This was a $1.5 trillion increase over last quarter and a $5.6 trillion gain over the past year and well over double the value of real estate 10 years ago when the current streak of home price gains began ($18.0 trillion).

Mortgage debt climbs, too

As home prices soared, the amount of debt buyers took on to finance them also grew. Mortgage debt totaled $12.2 trillion in the second quarter of 2022, which was $260 billion higher than its fourth quarter total and $890 billion more than its year ago level. Of note, after a moderate pullback in the first quarter, the second quarter saw the biggest quarterly growth in household mortgage liabilities since 2006, and the largest one-year growth since 2007.

Home equity continues to climb

With mortgage debt climbing at a slower pace than the value of real estate, homeowners saw a big increase in equity, to a new high mark. The total value of equity that homeowners had in real estate was just over $29.0 trillion in the second quarter, $1.2 trillion more than the first quarter and $4.7 trillion more than the previous year. In fact, equity as a share of real estate value is at 70.5%, its highest level since 1984. It’s well above the lows seen in 2012 (46.0%) and also above the 60-65% share it saw through much of the late 1990s and early 2000s. It continues to mark a striking contrast to earlier periods–a one-data-point summary of how different this housing market is from the early 2000s. 

This data signals that existing homeowners are on relatively solid financial footing, even as concerns about the economic trajectory increase uncertainty among home shoppers. Put another way, even if the value of homes were to universally decline by 10 percent from their level at the end of the first quarter, homeowner equity would still be at 67.2%, on par with fall 2020 which was then the highest level since 1989.

Financial Losses and Increased Debt Eat into Net Worth

Tempering the positive contributions from housing, a decrease in financial assets and an increase in debt ate into overall household and non-profit net worth. Driven largely by declines in mutual funds and equity holdings, the value of financial assets held by households and nonprofits slipped $7.3 trillion in the 2nd quarter and was $4.2 trillion lower than the prior year. Debt and other liabilities increased on par with the upper end of their recent range, rising $360 billion in the quarter and surging nearly $1.3 trillion from one year ago. After mortgage debt, the biggest contributor to increased household debt was consumer credit, which rose nearly $120 billion in the quarter and was up more than $320 billion from a year ago. As a result, total net worth for households and non-profit organizations fell $6.1 trillion in the quarter, matching the record level of decline seen in the first quarter of 2020, as the pandemic began. From one year ago, net worth remains $1.6 trillion higher.

Find the full Flow of Funds data here.


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