California coast with houses
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Getting a seat at the table is tough, but millions of people who placed their money in the housing market are seeing their bets pay off.

The number of properties that are seriously underwater is trending down and more homeowners are holding equity-rich real estate, according to a new report from ATTOM Data Solutions. The U.S. Home Equity & Underwater Report released earlier this month shows that 13.6 million U.S. properties were equity-rich during second quarter 2018, representing 24.5 percent of all U.S. properties with a mortgage.

A home is considered equity-rich if the debt secured by the property is equal to half or less of the property’s estimated market value. A home valued at $300,000 would have a maximum of $150,000 in debt to meet the threshold.

Homeowners are benefiting from two trends:

  • First, home prices and valuations are shooting up in many areas of the country, boosting overall home equity levels.
  • Second, people seem to be more reluctant to borrow against their homes, says Daren Blomquist, senior vice president with ATTOM Data Solutions.

“People are gradually starting to tap their home equity more, but much more conservatively than what we were seeing 12 years ago during the last housing boom,” Blomquist says. “Folks are not treating their homes as ATMs.”

The states with the most equity

Four of the top five states with the highest percentage of equity-rich properties were in the West. New York was the outlier.

California had the highest share of equity-rich properties out of the 45 states that ATTOM analyzed, at 43.5 percent. Hawaii came in at No. 2 with 38.3 percent, followed by Washington (34.5 percent), New York (33.2 percent) and Oregon (32.8 percent).

Anyone with a cursory knowledge of the national real estate market would quickly notice that places where home equity levels are particularly high are generally considered expensive for buyers.

“Rising home prices are a double-edged sword,” Blomquist says. “For homeowners, it means more home equity wealth. But it can also mean worsening affordability. That can be bad news for people who aren’t homeowners yet and that want to become homeowners.”

The states most seriously underwater

Lady Luck hasn’t been kind to all homeowners. More than 5.5 million U.S. properties were seriously underwater during the second quarter of 2018, representing 10.1 percent of all U.S. properties with a mortgage.

To be considered seriously underwater, the collective debt load secured by the property is at least 25 percent higher than the property’s estimated market value. A home valued at $300,000 would be carrying a minimum of $375,000 in debt.

The South and Midwest had the highest percentages of property owners sinking in debt, according to the ATTOM analysis of 49 states. More than a fifth of mortgage holders in Louisiana (21.7 percent) were seriously underwater. Illinois (18.5 percent), Missouri (17.8 percent) Mississippi (16.8 percent) and Ohio (16.2) percent were behind the Bayou State.

“The share of seriously underwater properties has dropped well below 10 percent in bellwether housing markets such as California, Washington, Texas, Colorado and New York, but the underwater rate remains stubbornly high in markets where price appreciation has not been as strong during the housing recovery of the last six years,” Blomquist says.

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