The ability to build home equity is often touted as one of the primary benefits of homeownership, and home equity in general accounts for a major portion of homeowner net worth. So shouldn’t the recent increases in household equity (page 6 of April Chartbook) be welcome news for homeowners, especially those whose houses’ value dropped significantly during the recession? The answer is yes, but with three caveats.
House price increases vary significantly across the country
According to CoreLogic’s House Price Index, nationwide house prices have risen by nearly 30 percent recently, after falling by 32 percent between 2006 and 2009. But despite these gains, nationwide house prices would have to rise by an additional 14 percent from today’s levels to reach their 2006 peak. (Remember, if home prices fall 50%, they need to rise 100% to get back to their previous peak).
More concerning, however, is the fact that several hard-hit areas such as Phoenix, AZ or Riverside, CA – both of which experienced house price declines of more than 50 percent – are still a very long way from reaching their 2006 peak. House prices in both these metros would have to rise by more than 40 percent from current levels before they can reach 2006 levels again. In fact, 12 of the largest 15 metropolitan areas (April Chartbook page 17) have yet to reach their 2006 peak, indicating that a large number of properties in these areas still remain underwater.
via Home equity is far outpacing mortgage debt, but it’s not all good news | Urban Institute.
