Positive And Negative Home Equity Are Increasing In 2022
We’ve been watching the economy and real estate market diverge for a while. Now that disparity appears to be showing up in rapid double digit appreciation for some homeowners. While others are sinking underwater on their mortgages.
How is this possible? Where are property prices rising and falling the most? How do you invest through it?
Equity Appreciation Growing At Almost 28%
Overall equity growth for those with mortgages and whose homes have appreciated in the past year has been close to 28%.
California and Florida are well ahead of the pack for positive growth. With an average annual increase of $100k in equity. More than many earn at their jobs.
Places like SWFL have still been seeing prices grow by 30% to over 40% year over year.
Homeowners Falling Deeper Underwater
At the same time, CoreLogic reports that negative equity has grown by over $300B in the past year as home prices in some areas sink below what they owe on their home mortgages.
That’s an increase of over 11% from last year.
The states where homeowners are falling deepest underwater appear to be centered in the Midwest, followed by the Northeast.
What’s Causing This Divergence?
All of this can really be tied back into inflation.
On one hand business owners and real estate investors are enjoying all the benefits of inflation in the form of profit. Yet, make so much money that they really aren’t fazed by inflation in groceries or gas prices.
The low end of the market is also untouched. As prices go up, so do government benefits to cover those increases. Such as with Section housing payments.
It’s the middle class which are really being destroyed. Higher interest rates, huge spikes in food, utility, and insurance costs are wiping them out financially. Which also means they can’t buy homes, and may not be able to afford the ones they have.
Those who see their equity being depleted, and end up owing more on their homes than they are worth due to high LTV mortgage loans, will frequently walk away.
How To Invest
There is still plenty of money to be made in declining markets. Though if you are going to invest in areas where negative equity is growing, it is wise to demand far deeper discounts to account for a continued slide in values during your deal.
If you are investing in areas still on the upswing, where the money is going to, it is still wise to account for a gradual slowing in appreciation.
If you have your exit in place before you get in, and fully leverage your deals with the best transactional funding, you minimize risk, and maximize the upside at the same time.
