As home equity gains slow, some see catalyst for buyers

At a time of tight housing inventory, a slowdown in price increases might seem odd, if not outright troubling.

But to some industry observers, a slower, albeit still somewhat steady rate of price growth could spark an uptick in the willingness of buyers and sellers alike to consider their options a bit more aggressively. The thinking: price increases will bring a new crop of owners above water on their mortgages, making a sale seem more appealing. That, in turn, could free up inventory that creates a more dynamic market.

According to the CoreLogic Home Equity report issued on Thursday, homeowners with mortgages — about 63% of all properties — saw an annual equity increase of 8.1% in the closing quarter of 2018, a total of $678.4 billion from the fourth quarter of 2017.

"Our forecast for the CoreLogic Home Price Index predicts there will be a 4.5% increase in our national index from December 2018 to the end of 2019," Frank Nothaft, chief economist for CoreLogic, said in a press release. "If all homes experience this gain, this would lift about 350,000 homeowners from being underwater and restore positive equity."

The average homeowner gained $9,700 worth of annual equity from a year ago, marking the smallest year-over-year increase in the past nine quarters.

Annual home price growth has slowed for 10 consecutive months while month-over-month prices declined for four straight months, according to Black Knight.

"The slowdown in equity is consistent with the slowdown of home value appreciation. There's more inventory on the market today, interest rates increased in the second half of last year and those factored into it," Tian Liu, chief economist at Genworth, said in an interview. "There's gradual recovery in purchase activity and that’s a good sign of the housing market as we move into the spring selling season. It's a very healthy pullback at this point in the housing cycle."

Home equity grew in 45 of the 50 states. Like the previous quarter, the largest increases came in the West. Nevada's homeowner equity grew the most, adding an average of $29,400 year-over-year. Hawaii followed with annual gains of $26,851. Idaho came third with $24,718 and was the only other state above the $20,000 threshold.

Negative equity declined 14% year-over-year in the fourth quarter to 2.2 million homes from 2.6 million, or 4.2% of properties with mortgages. However, underwater mortgages had the first quarter-over-quarter increase since 2015, rising 1.6%.

"At the time of the housing crisis, people with negative equity had a huge impact on the housing market and kept it from adjusting," Liu said. "I think that long decline has finally reached a place where it cannot go lower any longer. That's why you're going to occasionally see an increase at this point in the cycle."