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Zillow Market Pulse: September 21, 2020

·4 mins read

September 21, 2020

Accelerating home value growth has yielded strong home equity gains. More than a million homeowners qualify for mortgage forbearance programs, but are not taking part. And Americans' financial health appears to be rising, but challenges remain.

Home value growth fuels increased in home equity

  • Home equity for homeowners with a mortgage increased 6.6% from Q2 2019 to Q2 2020, according to CoreLogic.

  • Just 1.7 million homes are in negative equity, down 15% from a year ago.

Many at-risk households are missing out on forbearance programs

  • Black Knight: 1.06 million homeowners are behind on monthly mortgage payments, despite qualifying for forbearance protection.

  • Of those, roughly two-thirds (680,000) have federally guaranteed loans, which offer 12 months of protection.

Households' financial well-being has improved, but there's a long way to go

  • According to the Federal Reserve, 77% of adults said that they were doing at least okay financially as of July, up from 72% in April.

  • But 30% of households are still unable to make an unexpected $400 emergency expense, and job losses are becoming permanent.

So what?

The pace of home value growth has accelerated as the housing market has thus far proven more-than-capable of riding out many pandemic-related challenges — and, as a result, the amount of equity that homeowners have in their houses is also up. The typical U.S. home value increased 5.1% in the 12 months ending in August, according to Zillow Research, as an enduring shortage of for-sale inventory failed to keep up with demand. And the amount of home equity for homeowners with a mortgage increased by 6.6% in the second quarter of 2020 compared to the same period in 2019, according to CoreLogic. What's more, the number of homes in negative equity – when the amount owed on a mortgage exceeds the value of the home – fell to just 1.7 million, just 3% of all outstanding mortgages and down 15% from the second quarter of 2019. The improvements are a stark difference from the conditions during and immediately following the Great Recession, and should help millions of people avoid foreclosure, should they need/decide to sell their home, due to effects of the pandemic.

An apparent shortfall in the number of at-risk homeowners taking advantage of available mortgage relief puts these equity numbers in even sharper relief. More than a million households with a mortgage have fallen behind on monthly mortgage payments, according to Black Knight, but are so far not participating in programs offering temporary payment relief. Of the 1.06 million households meeting this description, almost 700,000 have a loan that is federally guaranteed and thus qualifies for forbearance programs that allow borrowers to skip payments for up to 12 months. Black Knight also reported that 3.07 million loans were under forbearance, so the absence of the 1.06 million loans is significant. The lack of participation in part illustrates the challenges surrounding mortgage forbearance, particularly in the messaging and application process. Difficulties related to borrowers' knowledge of program availability and their qualifications, as well as concerns about longer-term penalties, contributed to the limited participation rates, according to the report. More than half (56.6%) of respondents to a separate recent survey from the National Housing Resource Center did not know about forbearance programs, and nearly 70% expressed concern about having to make lump sum payments immediately after their protection expires. So, while forbearance programs have helped soften the financial blow of COVID-19 for millions, it appears that many are still being left behind.

A slew of financial assistance programs including the CARES Act and other efforts helped improve the financial well-being of U.S. adults, according to the Federal Reserve. Just over ¾ (77%) of adults stated that they were doing at least okay financially in July 2020, up 5 percentage points from early April and 2 points from October 2019. But despite the headline improvement, the report also illustrated the enduring challenges faced by many households, particularly as it relates to job prospects and financial flexibility. 14% of all respondents reported that they had been laid off since the pandemic started, and of them just under a quarter (22%) said that they remained unemployed and did not expect to resume working at their old place of employment — up from 7% in April. The report also found that 30% of U.S. adults would not be able to pay for an unexpected $400 emergency expense using cash, savings or a credit card that they would pay off the following month. This is an improvement of 7 percentage points from October 2019, but still very high.

Click here to read past editions of Zillow’s Market Pulse updates.

The post Zillow Market Pulse: September 21, 2020 appeared first on Zillow Research.