A Drop in Equity Doesn’t Mean Low Equity: Palm Beach County

You may come across media coverage discussing a decline in homeowner equity, but it’s crucial to understand that equity is closely tied to home values. When home prices appreciate, equity tends to grow, and when home prices decline, equity follows suit. Let’s explore how this dynamic has unfolded recently in Palm Beach County.

During the ‘unicorn’ years, home prices experienced rapid growth, providing homeowners with substantial equity boosts. However, it was inevitable that the market would eventually moderate, as we witnessed in the fall and winter of last year.

As home prices in Palm Beach County slightly decreased in the latter half of 2022, homeowner equity was impacted. According to the latest report from CoreLogic, there was a 0.7% dip in homeowner equity over the past year. However, it’s important not to let the headlines overshadow the full picture. Despite the depreciation in home prices during the second half of last year, homeowners in Palm Beach County still possess near-record levels of equity.

To illustrate this point, let’s refer to the graph below, which represents the total amount of tappable equity in the country since 2005. Tappable equity refers to the equity available for homeowners to access before reaching a maximum 80% loan-to-value ratio (LTV). The data clearly demonstrates a significant equity boost during the ‘unicorn’ years when home prices appreciated rapidly (indicated by the pink section in the graph).

What’s crucial to recognize is that even though there has been a slight dip, the total homeowner equity in Palm Beach County is significantly higher than it was before the ‘unicorn’ years.

Moreover, there is more positive news to consider. Recent home price reports indicate that the worst of the price declines is behind us, and prices have begun to rise once again. Selma Hepp, Chief Economist at CoreLogic, explains:

“Home equity trends closely follow home price changes. As a result, while the average amount of equity declined from a year ago, it increased from the fourth quarter of 2022, as monthly home price growth accelerated in early 2023.”

This quote emphasizes a crucial aspect that the news often overlooks. Experts further suggest that home prices are forecasted to appreciate at a more typical rate over the next year. Hepp adds:

“The average U.S. homeowner now has more than $274,000 in equity – up significantly from $182,000 before the pandemic. Also, while homeowners in some areas of the country who bought a property last spring have no equity as a result of price losses, forecasted home price appreciation over the next year should help many borrowers regain some of that lost equity.”

Although Odeta Kushi, Deputy Chief Economist at First American, refers to a slightly different figure, her statement further validates the fact that homeowners in Palm Beach County currently possess a significant amount of equity:

“Homeowners today have an average of $302,000 in equity in their homes.”

This means that if you have owned your home in Palm Beach County for a few years, you likely have much more equity than you did before the ‘unicorn’ years. Even if you have owned your home for a year or less, the forecasted more typical price appreciation over the next year should indicate that your equity is already on the path to recovery.

Bottom Line

Context is crucial when interpreting headlines. Although homeowner equity has experienced a slight decline compared to last year, it remains at near all-time highs in Palm Beach County. If you are planning your move this year, let’s connect and ensure you get the answers you deserve from an expert who is dedicated to assisting you in Palm Beach County.