Average Equity In U.S. Homes: Overview, FAQs (2024)

Home equity in the United States is at an all-time record, with the average mortgage holder now owning $185,000 in accessible home equity. That figure increased by 35% in 2021, fueled by a similarly rapid increase in house valuations. This is the fastest rate at which average U.S. home equity has ever grown—more than twice the rate of 2020, the previous high.

The rise in average house valuations has encouraged some homeowners to sell their properties, but it has also led to increased demand for financial products that allow mortgage holders to access the equity in their homes. In this article, we’ll look at figures on average equity in more detail and explain what they mean for the average homeowner.

Key Takeaways

The average amount of home equity in the United States is at a record high. The average mortgage holder now owns $185,000 worth of equity.
This increased by almost $48,000 in 2021. The rapid rise was partly driven by increased house price valuations over the same period.
The recent rise in home equity means that many homeowners are now looking to access some of the money that they have invested in their houses. For some, that means selling their homes.
For others, that means looking to financial products that can unlock equity: cash-out refinancing; home equity lines of credit (HELOCs); and reverse mortgages, often offered through what is called home equity conversion mortgages (HECMs).

U.S. Average Home Equity

First, let’s take a look at the recent home equity figures in more detail. At the time of this writing, the most up-to-date figures on home equity available are those from the end of 2021. In December 2021, research firm Black Knight found that the average mortgage holder has $185,000 in accessible home equity—that is, the equity that mortgage holders can access while maintaining a 20% stake in their homes. This represents an increase in average equity of almost 35% in 2021 and means that there is currently $10 trillion in home equity held across the U.S. The average increase per homeowner in 2021 was $48,000.

This record rise in average home equity has been driven by a variety of factors. Housing valuations rose 17% in the 12 months up to September 2021, driven by a housing market that is rapidly recovering from the slump associated with the COVID-19 pandemic. These gains were not evenly distributed across the country, however. House price rises on the West Coast and in the Mountain states have been most pronounced, with California borrowers seeing an average annual increase of $119,000. Meanwhile, average equity gains in North Dakota were estimated at just $15,000.

Despite record gains, some analysts have also suggested that house valuation prices will rise further over the next few years, pushing the average equity higher as well. Black Knight expects to see further rises, and Fannie Mae estimates prices will rise 10.8% in 2022 followed by a 3.2% gain in 2023, as of April 2022.

Accessing Equity

This record rise in equity has encouraged many homeowners to seek to access some of the money that they have invested in their homes.

For many, that means selling their home. The most recent data here suggest that the average price for house sales has increased largely in line with the increase in valuations. In March 2022, the median house price jumped 15% to $375,300. However, home sales were also dropping off after a period of rapid growth in late 2021 and early 2022.

For others, an increase in home equity has led to consideration of ways of accessing equity without moving house. Traditionally, there have been three ways of doing this: cash-out refinancing; home equity lines of credit (HELOCs); and reverse mortgages, most often offered through home equity conversion mortgages (HECMs). Data from the Urban Institute, for example, indicates that demand for reverse mortgages is increasing. The combined number of those loans to seniors increased to 759,000 in 2020, from 647,000 in 2018.

If current trends continue, more and more homeowners are likely to access their home equity. However, with borrowing costs expected to rise as the Federal Reserve raises interest rates, this may prove to be a short-lived boom.

Are home equity loans tax deductible?

The interest paid on a home equity loan can be tax deductible if the proceeds from the loan are used to “buy, build, or substantially improve your home.” However, with the passage of the Tax Cuts and Jobs Act and the increasedstandard deduction, itemizing to deduct the interest paid on a home equity loan may not lead to savings for most filers.

What is a good amount of equity in a house?

It’s advisable to keep at least 20% of your equity in your home, as this is a requirement to access a range of refinancing options. Borrowers generally must have at least 20% equity in their homes to be eligible for a cash-out refinance or loan, for example. Sometimes, this is expressed as having an 80% loan-to-value (LTV) ratio of the home’s current value.

How much equity do U.S. homes have?

Nearly one in two U.S. mortgaged residential properties—42%—was considered equity rich (meaning that the combined estimated amount of loan balances secured by those properties was no more than 50 percent of their estimated market values) in the fourth quarter of 2021. That’s up from 30% in the same quarter of the previous year.

The Bottom Line

The average amount of home equity in the U.S. is at a record high. The average mortgage holder now owns $185,000 worth of equity, and this increased by almost $48,000 in 2021. This rapid rise was partly driven by increased house price valuations over the same period.

The recent rise in home equity means that many homeowners are now looking to access some of the money that they have invested in their houses. For some, that means selling their homes. For others, that means looking to financial products that can unlock equity: cash-out refinancing; HELOCs; and reverse mortgages, most commonly offered through HECMs.

As someone deeply involved in real estate finance and housing market trends, I can confidently delve into the article's subject matter regarding home equity in the United States.

Firstly, the article highlights the unprecedented surge in home equity, citing figures from Black Knight and other sources to establish the average amount of accessible home equity per mortgage holder, which stands at a record $185,000. This growth, representing a 35% increase in 2021 alone, owes itself to the substantial rise in house valuations, which expanded by 17% in the year leading up to September 2021. The surge isn't uniformly distributed across regions; the West Coast and Mountain states experienced more significant spikes compared to other areas like North Dakota.

The implications of this surge in home equity are far-reaching. It's incentivizing homeowners to explore avenues to access this newfound wealth, whether by selling their properties or leveraging financial tools designed to tap into home equity. These financial products include cash-out refinancing, home equity lines of credit (HELOCs), and reverse mortgages, commonly known as home equity conversion mortgages (HECMs).

Looking ahead, projections suggest a continued increase in home prices, albeit at a slower pace, with estimates like those from Fannie Mae indicating a 10.8% rise in 2022 followed by a 3.2% gain in 2023, as of April 2022. However, this upward trend might face challenges due to rising borrowing costs tied to potential interest rate hikes by the Federal Reserve.

To address some of the specific questions posed in the article:

Tax Deductibility of Home Equity Loans: Interest paid on home equity loans can be tax deductible if the loan proceeds are used for specific home-related purposes, as per the Tax Cuts and Jobs Act. However, the increased standard deduction might mean that itemizing deductions for home equity loan interest may not be beneficial for many filers.
What Constitutes a Good Amount of Equity in a House: It's generally advisable to maintain at least 20% equity in one's home, as this threshold is often required for accessing various refinancing options. Having 20% equity translates to an 80% loan-to-value (LTV) ratio based on the home's current value.
Current Equity Levels in U.S. Homes: As of the fourth quarter of 2021, nearly 42% of mortgaged residential properties in the U.S. were considered "equity-rich," signifying that the total estimated loan balances secured by these properties were not more than 50% of their estimated market values. This represents a significant increase from 30% in the same period of the previous year.

In conclusion, the surge in home equity is reshaping the housing market landscape, prompting homeowners to evaluate their options, whether it involves selling their properties or exploring various financial instruments aimed at unlocking the wealth tied up in their homes. As the market dynamics continue to evolve, it's crucial for homeowners to assess these opportunities while navigating potential challenges, especially those related to borrowing costs and shifting tax implications.