US homeowners lost a staggering $1.3 trillion in home equity in the third quarter during a major slump in the housing sector, according to data published by mortgage analytics firm Black Knight on Tuesday.
Home equity – broadly defined as the value of a homeowner’s property minus what is still owed on their mortgage – has plummeted during a rapid market correction.
The equity losses in just three months were “by far the largest quarterly decline on record by dollar value and the largest since 2009 on a percentage basis,” according to Black Knight data & analytics president Ben Graboske.
“From a risk perspective, we’ve already seen the number of underwater borrowers more than double alongside the equity pullback,” Graboske added.
Surging mortgage rates have crushed affordability and led many home sellers to cut their asking prices in a scramble to entice buyers. Median home prices fell 0.52% in September, marking the third straight month of price declines, according to the firm.
Overall, equity among mortgaged homes is down nearly $1.5 trillion since hitting its peak in May. The average borrower’s equity has plunged $30,000 over the same period.
As The Post has reported, experts are warning that home prices will sharply decline by next year as the higher mortgage rates reverberate through the market.
The average 30-year fixed-term mortgage fell slightly to 6.95% last week after previously topping 7% for the first time in two decades. Rates have more than doubled since January as the Federal Reserve hikes its benchmark interest rate.
While the housing correction is likely to continue, Black Knight noted that market conditions have improved since the sector imploded during the Great Recession.
The number of “underwater” homeowners – or those who owe more money on their mortgages than the value of their properties –is less than 500,000 across the country.
“Historically speaking, that is still extremely low,” Graboske said.
Graboske added that most of the homes at risk of falling “underwater” were “purchased in 2022 and late 2021, at or near pandemic-era peak prices.”
Additionally, while home prices have begun to fall, they are still up by between 19% and 66% across the country’s 50 largest markets.