If you look at what owners owe on their mortgages versus what they can sell their house for in the current market you can determine the state of home equity. How does it look in California? How many of our homeowners are struggling with what is known as "negative equity" - which is a warning sign for the real estate industry.
Economy writer Jonathan Lansner put together an interesting review on the state of underwater mortgages and home equity in our fine state in an August 9 issue of the Union Tribune. I am drawing data from it since I have recently had more people say, "I will wait and buy when there are more foreclosures." According to Lansner's article, with data taken from CoreLogic, it might be awhile before that happens.
Although our home buying pace is in line with Great Recession lows, negative equity is not in the same place. For the first quarter of this year, California had 55,568 properties that were upside down (had negative equity.) That number is just .07% of California mortgages. Per Lansner, that is the lowest percentage amount the states . Number two was Nevada at .71%. The national average is 1.7% with Louisiana the highest at 5.6%.
Between 2009 and 2013 underwater mortgages in California hit a high of 37% of all home loans. We are very far off of that for many reasons but much is related to aggressive lending practices which are no longer in place.
Another contributor is the dramatic appreciation of property since COVID which left most home owners with a big cushion. The median price of a California home has appreciated by roughly 35% - 45% since the onset of the COVID-19 pandemic in early 2020 per Zillow. That combined with the low mortgage rates of the period has caused people to keep their homes longer and benefit from that appreciation which protects them from negative equity.
Underwater loans are not the story in real estate. What is the story is a frozen sales market. There were 320,900 state-wide home sales in the 12 months through April. That is 26% below the historic rate and less than the Great Recession's lowest pace. So if you are waiting for the foreclosures to hit hard you will have a long wait.
