In the first quarter of 2024, Flow of Funds data from the Federal Reserve showed that the total value of owner-occupied real estate registered at $45.8 trillion, hitting a new record-high. Despite a continued rise in mortgage debt, home equity also reached its highest level ever recorded.
Here’s what we learned:
The value of homes hits a new high
The total value of owner-occupied real estate, the value of all homes owned by those living in them, reached $48.2 trillion in 2024Q2, marking the highest total home values ever recorded. This was a around $1.8 trillion increase over last quarter and a $3.5 trillion gain over the past year. It is over double the value of real estate 10 years ago when the values were between $20 trillion and $22 trillion.
New mortgage debt continued to grow but was issued at a slower pace
During the second quarter of 2024, mortgage debt reached a total of $13.1 trillion, reflecting an increase of $98.5 billion from the previous quarter and $339.2 billion from the same period the previous year. It’s worth noting that this quarter experienced one of the lowest annual growth in household mortgage liabilities, 2.6% year-over-year, compared to the growth observed between 2020 and 2022. Nevertheless, the annual growth in mortgage debt during 2024Q2 surpassed the range of $235 billion to $274 billion observed during the second quarter from 2017 to 2019.
Home equity stood at the highest level measured
While mortgage debt continued to climb, the high value of real estate enabled homeowners to see their equity reach a new high in the second quarter of 2024. During the second quarter, the total equity held by homeowners in real estate amounted to $35.1 trillion, marking an increase of $1.7 trillion from last quarter and exhibiting a $3.1 trillion increase from the previous year.
Equity, when measured as a proportion of real estate value, is at 72.7%, the highest level since 1960. It’s well above the lows seen in 2012 (45.8%) and also above the 60-65% share it saw through much of the late 1990s and early 2000s. It continues to mark a striking contrast to earlier periods. While concerns persist regarding housing market affordability, it’s evident that today’s households find themselves in a markedly different equity position compared to those in the 2000s.
Home equity continues to be a differentiator for today’s market
Home price declines impact housing equity. Fortunately, today’s record-high home equity is able to provide a substantial cushion to existing homeowners in the aggregate. Specifically, the average equity for existing homeowners was roughly around $267,000. Even if the value of homes were to universally decline by 10 percent overnight from their level at the end of the second quarter, homeowner equity would still be at 69.7%, on par with the second half of 2021. Similarly, a 20 percent drop in home prices would leave homeowner equity at 65.9%, on par with its level in 2019.
Slow price declines could cause equity to dip further
Even if home prices were to gradually decline over the next two years and mortgage debt continued to rise, homeowners would still have significant equity. This scenario is unlikely, as falling home prices would probably lead to less mortgage lending. However, even under these conditions, homeowners would still have 62.3% equity in their real estate by the end of that period.
This ending equity result is somewhat lower than what we’d find in the event of an overnight price decline of 20% (65.9%), a reminder of the important role that home lending plays in household equity in real estate, right alongside home prices.
See the full Flow of Funds data.