Equity Dynamics in the U.S. Real Estate Market

Welcome to our latest exploration of the U.S. housing market. In this month’s edition we will review the equity landscape of U.S. homeowners and discuss the development of equity-rich properties and seriously underwater mortgages. Whether you’re an investor, a homeowner, or simply interested in the housing market, this newsletter offers valuable insights into the dynamics of the U.S. real estate market. 

Equity of U.S. Homeowners Takes Another Hit in Q1 2024
The U.S. Home Equity & Underwater Report, released by ATTOM for Q1 2024, revealed that 45.8% of residential properties with mortgages in the United States were classified as equity-rich during the first quarter. This means that the total estimated loan balances secured by these properties did not exceed half of their estimated market values.

The percentage of mortgaged homes classified as equity-rich in Q1 2024 has dropped from 49.0% in Q2 2023, to 47.4% in Q3 2023 and 46.1% in Q4 2023, marking the third consecutive quarterly decrease and reaching a two-year low. See chart “Equity-Rich Properties: Third Consecutive Decline” for details.

This trend in the U.S. housing market is crucial to monitor as it indicates a consistent decrease in equity-rich properties. This shift could potentially affect homeowners’ financial stability and borrowing power, impacting the overall real estate landscape.

Simultaneously, the report indicates that the percentage of mortgaged homes in the U.S. that were seriously underwater saw a slight increase in the early months of 2024, rising from 2.6% to 2.7% of all residential mortgages. See chart “Seriously Underwater Mortgages: Slight Increase” for details. 

Seriously underwater mortgages are those where the combined estimated loan balances secured by the properties are at least 25% higher than the properties’ estimated market values.

The trend concerning seriously underwater homes seems to be pointing upwards, which could signal heightened financial risk for both homeowners and financial investors. However, the current share of seriously underwater homes is far away from the 18% that were reached during the Financial Crisis of 2008.  

Geographical Disparities
Equity-Rich Properties: The most significant quarterly declines were observed in the Southern regions, with Kentucky leading the way (the percentage of mortgaged homes deemed equity-rich fell from 35.4% in Q4 2023 to 28.7% in Q1 2024), followed by South Carolina (down from 42.4% to 40%), Georgia (down from 46% to 43.7%), Delaware (down from 39.4% to 37.2%), and Indiana (down from 43% to 40.9%). See chart “Equity-Rich Properties: Most Significant Declines” for details. 

Seriously Underwater Mortgages: The most substantial increases were concentrated in the South, which already had some of the nation’s highest levels of seriously underwater mortgages. The largest quarterly increases were in Kentucky (percentage of mortgaged homes that were seriously underwater rose from 6.3% in Q4 2023 to 8.3% in Q1 2024), West Virginia (up from 4.4% to 5.4%), Oklahoma (up from 5.5% to 6.1%), Arkansas (up from 5.2% to 5.7%), and Delaware (up from 2.3% to 2.7%).

The Midwest and South regions accounted for nine of the top 10 states with the highest percentages of seriously underwater mortgages in Q1 this year. The top five were Louisiana (11.3% seriously underwater), Wyoming (8.8%), Kentucky (8.3%), Mississippi (7.1%), and Oklahoma (6.1%).

The smallest percentages were in Vermont (0.8% seriously underwater), Rhode Island (1.1%), New Hampshire (1.1%), California (1.2%), and Massachusetts (1.3%).

Loan-to-Value Ratio
The Loan-to-Value (LTV) ratio is a financial term commonly used in the lending industry. It compares the size of a loan to the value of the property securing the loan. The LTV ratio is significant because it provides an assessment of the risk associated with a loan.
The LTV ratio is calculated by dividing the loan amount by the appraised value of the property. The formula is as follows:

For example, if you’re buying a home worth $200,000 and you have a mortgage of $150,000, your LTV ratio would be 75%.

The LTV ratio is typically calculated by independent and trustworthy appraisers. These professionals conduct a thorough evaluation of the property to determine its current market value. This ensures that the LTV ratio is based on an accurate and unbiased assessment of the property’s worth.

The importance of the LTV ratio extends to first trust deed investors. A lower LTV ratio indicates a lower risk associated with the loan. If the borrower defaults, the investor has a better chance of recouping their investment through the sale of the property. Conversely, a higher LTV ratio suggests a higher risk because the loan amount is closer to the property’s value, leaving a smaller equity cushion if the property needs to be sold. Therefore, understanding the LTV ratio is crucial for investors when assessing the risk and potential return of a loan.

What Does it Mean for Investors?
As an investor, safeguarding your investments is paramount. At SCP, we understand this and offer first trust deed loans with a favorable LTV ratio of up to 65%. Here’s why this is significant:

Mitigated Risk: Our conservative loan-to-equity ratio significantly reduces the likelihood of homeowners going underwater. Regardless of market fluctuations, our loans remain securely backed by substantial property equity.

Stability: Our strategic approach provides stability for both borrowers and lenders. A robust equity position empowers property owners to withstand market changes, while providing peace of mind for our investors.

Opportunity: Market adjustments often present strategic investment opportunities. Our first trust deed loans enable investors to seize these opportunities while minimizing downside risk.

Our first trust deed lending offers a prudent approach with low loan-to-value ratios of 65% or under. This strategy alleviates the burden of dealing with property occupancy issues, allowing for consistent payments regardless of occupancy status. These investments are particularly advantageous in landlord-friendly states, offering stability and security amid evolving market conditions.

SCP facilitates loans at competitive interest rates starting at 10%, providing most investors with a hassle-free first trust deed ownership experience. By choosing lending over traditional landlord responsibilities, investors position themselves advantageously in a high-interest environment where borrowers compete, and lenders prevail.

With close to two decades of experience, our team at Safeguard is committed to helping investors optimize their returns while minimizing their risks. Reach out to Safeguard today at 877-280-5771, whether through a call or email, and let’s work together to make your money work for you.