For the millions of Americans who own their homes, their real estate is typically their largest source of wealth. The good news? These assets have grown in value over the past year thanks to rising house prices.
The typical American homeowner saw their home equity increase by $20,000, or 6.8%, through the end of the third quarter compared to a year earlier, according to a new analysis from real estate data firm CoreLogic.
Despite a headwind in the form of the highest mortgage rates in two decades, average home prices have risen about 9% this year, according to the National Association of Realtors. It has increased the value of home owners’ equity, or the difference between how much a home is worth and the amount remaining on a mortgage.
Home equity is a key to building wealth because it can give a property owner a way to leverage the value of their home, e.g. through a home loan. And when they sell their home, the property owner will pocket more money after paying off their mortgage.
“Growth in home equity is driven by home price growth, and that’s why we’ve had quite a bit of growth this year, considering everything else that’s going on in the housing market,” Selma Hepp, chief economist at CoreLogic, told CBS MoneyWatch.
“When people have more equity in their home, they feel richer,” she added.
Building home equity also provides a buffer in case of financial emergencies and gives owners another source of assets to draw on when larger expenses arise, such as paying for college or making home repairs.
While the typical homeowner in most U.S. states saw their equity jump this year, property owners in some parts of the country lost ground, according to CoreLogic.
Property owners in Texas lost an average of about $9,000 in home equity compared to a year ago, the study found.
The reason, Hepp said, is partly due to the softness in the Austin real estate market, which saw a huge price increase during the pandemic. Even with the decline, Texas homeowners continue to have significant equity in their properties at an average of $217,000 each, CoreLogic noted.
Two other states experienced declines in home equity over the past year: New York (where equity fell $7,525 on average) and Utah (an $873 loss). Yet homeowners in these two states have average home equity of $364,000 and $348,000, respectively.
“Growth in home prices matters, and that’s whether the changes in home prices play out,” Hepp noted. “In Texas, we’ve seen declines in home prices, especially this year.”
Where homeowners win the most
Meanwhile, homeowners in Hawaii, California and Massachusetts — among the most expensive states for home ownership — saw the biggest gains in 2023.
They are also the states where property owners already have some of the highest equity in their homes. For example, the typical Hawaii homeowner has about $717,000 in equity, while Californians average about $634,000 in equity, CoreLogic said.
Home ownership can provide a path to greater wealth with a Federal Reserve report notes that the 66% of Americans who own their own properties saw their equity increase from $139,100 in 2019 to $201,000 in 2022.