Homeowners' net worth (home equity) has reached its highest level since the 1950s. While mortgage debt has increased, the rapid rise in home prices and the complete payoff of mortgages by some baby boomers have significantly boosted homeowners' equity and overall net worth.

According to the Federal Reserve Board’s (FRB) latest financial accounts report released on the 8th, homeowners’ equity, which is the value of their real estate minus mortgage debt, hit 72.7% in the second quarter of this year. This is the highest level since 1958. Homeowners' total equity has tripled in the past decade, reaching a record high of $35.1 trillion this quarter.

Economist Jiayi Xu from Realtor.com explained, "Although mortgages have continued to rise, home prices have increased at an even faster pace, which has expanded homeowners' equity and, consequently, their net worth. This reflects the housing market's characteristics, where increased demand and limited inventory have driven up property values."

The FRB reported that the market value of the housing sector reached a record high of $48.2 trillion in the third quarter of this year, an 8% increase from a year ago and double the total market value of all homes from a decade ago.

Despite mortgage debt also reaching a record high of $13.1 trillion in the third quarter, the pace of increase has slowed due to weak home sales. High interest rates and a shortage of new home construction have led to limited housing inventory. As a result, mortgage debt only increased by 3% compared to a year ago and by 40% over the past decade.

Market experts attribute the record-high equity ratio to rising home prices and an increase in fully-owned homes, as more baby boomers have paid off their mortgages. According to Census Bureau data, about 40% of homes nationwide are mortgage-free, the highest percentage since 2005.

Realtor.com noted that the average equity of existing homeowners is approximately $267,000, which provides a significant cushion even if home values decline slightly. The site stated, "Even if home prices were to drop 10% overnight, the overall equity ratio would still remain at 69.7%, a level similar to the end of 2021. If home prices fell by 20%, the equity ratio would return to 2019 levels."

Market experts suggest that the record-high average equity demonstrates homeowners' strong position in the housing market. Realtor.com added, "If home prices decline, those who have purchased homes most recently are likely to face the greatest risk, rather than existing homeowners."

By Hongyong Park

<Hongyong Park>