California’s housing market is cooling fastest, hitting home equity hard.
Some 250,000 people who took out a mortgage this year to buy a home are now underwater, meaning they owe more on their loan than the home is worth, Black Knight, a mortgage software provider, found. Another million have less than 10% equity.
Those unlucky homebuyers got caught in the crunch between historically high housing prices and rapidly rising mortgage rates, which in recent months have caused real estate values to slide.
While the portion of underwater mortgages is still historically low, “a clear bifurcation of risk has emerged between mortgaged homes purchased relatively recently versus those bought early in or before the pandemic,” Black Knight said.
California’s housing market is tanking faster than any other state’s.
Housing affordability tanked in California this year. But the state’s stratospherically-high home prices have also led to it witnessing some of the biggest drops in median sale prices since much of the US housing market peaked earlier this year.
Indeed, data provided to Insider from Zillow shows that California has more cities in the list of the top metros with the biggest drop in sale prices than any other state.
According to the stats, San Francisco, San Jose, San Diego, Los Angeles, Sacramento, and Oxnard (which is located near Ventura) have all seen home prices fall more than 5% from their peak values earlier this year. Additionally, Stockton has seen its median sale price drop 4.8% from its peak. That brings California’s total to seven metros out of the top 20 for the nation that have seen the most severe drop in housing prices.
Southern California home prices fell in November, marking the fifth time in six months that prices declined amid a broad slowdown in the housing market. https://t.co/1lx04WyAkG
— Los Angeles Times (@latimes) December 12, 2022
The dramatic drop is impacting home equity, which hits Californians hard.
Homeowners can’t leverage the entire equity in their homes; lender regulations typically require that at least 20% of it be retained. But the remaining “tappable equity” is still significant. It amounts to $11.5 trillion overall, and an average of $216,900 for each American homeowner at the end of June 2022, according to Black Knight.
But the boom appears to be abating, especially in places where equity is the greatest. That includes California, which has a full third of the home equity in the nation. A perennial shortage of homes, combined with the COVID-19-related surge in demand, has driven up home values in California to a greater extent than in most other parts of the country.
Yet Black Knight finds that areas of the country with the highest housing prices, including many parts of California, might be hitting a peak in terms of equity appreciation. California saw a decline of tappable equity of some $155 billion in the second quarter. Granted, that drop comprises a mere 4% of homeowners’ tappable equity in the state. But it’s a shift in the market of which homeowners should be aware, experts say.
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