Understanding Homeowner Equity in Los Angeles and Beverly Hills: Context and Forecast

Understanding Homeowner Equity in Los Angeles and Beverly Hills: Context and Forecast |

Christophe Choo at Coldwell Banker Global Luxury is Your Local Real Estate Expert 

You may see media coverage talking about a drop in homeowner equity, and it's important to understand how closely equity is tied to home values. When home prices appreciate, equity grows, and when home prices decline, equity decreases as well. Let's take a look at how this has played out recently, including insights from the Los Angeles and Beverly Hills housing markets.

During the 'unicorn' years, home prices in Los Angeles and Beverly Hills rose rapidly, giving homeowners a significant boost in equity. However, as expected, the market had to moderate at some point, and that's exactly what happened last fall and winter.

In the latter half of 2022, home prices in these areas experienced a slight drop, which impacted homeowner equity. According to the recent report from CoreLogic, there was a 0.7% dip in homeowner equity over the last year. However, it's crucial to note that the headlines reporting on this change don't provide the complete picture. Despite the dip caused by home price depreciation, homeowners still possess near-record amounts of equity, even in Los Angeles and Beverly Hills.

To illustrate this point, let's examine the graph below, which represents the total amount of tappable equity in the country since 2005. Tappable equity refers to the equity available for homeowners to access before reaching an 80% loan-to-value ratio (LTV). As the graph shows, there was a significant increase in equity during the 'unicorn' years when home prices rapidly appreciated (see the pink section in the graph).

What's crucial to realize is that even though there has been a small dip, the overall homeowner equity is still much higher than it was before the 'unicorn' years, particularly in Los Angeles and Beverly Hills.

Furthermore, there's more good news on the horizon. Recent home price reports indicate that the worst home price declines are now behind us, and prices have begun to rise again. Selma Hepp, Chief Economist at CoreLogic, explains that home equity trends closely follow home price changes. While the average amount of equity declined from a year ago, it increased from the fourth quarter of 2022 as monthly home price growth accelerated in early 2023.

This piece of the puzzle is often left out of the news coverage. Experts also forecast that home prices will appreciate at a more normal rate over the next year, further emphasizing the positive turn we're already witnessing. Hepp puts it this way in the same report:

"The average U.S. homeowner now has more than $274,000 in equity – up significantly from $182,000 before the pandemic. Also, while homeowners in some areas of the country who bought a property last spring have no equity as a result of price losses, forecasted home price appreciation over the next year should help many borrowers regain some of that lost equity."

Odeta Kushi, Deputy Chief Economist at First American, provides a slightly different number but further confirms that homeowners currently possess substantial equity:

"Homeowners today have an average of $302,000 in equity in their homes."

Therefore, if you've owned your home in Los Angeles or Beverly Hills for a few years, it's highly likely that you still have much more equity than you did before the 'unicorn' years. Even if you've owned your home for a year or less, the projected typical price appreciation over the next year should mean that your equity is already on the rise.

In conclusion, it's crucial to consider the context when examining headlines about homeowner equity. While there has been a slight drop from last year, homeowner equity is still near all-time highs, especially in desirable areas like Los Angeles and Beverly Hills. To get accurate answers and guidance as you plan your move this year, it's recommended to connect with an expert who can provide the necessary insights tailored to your specific circumstances.

Call Christophe Choo at (310) 777-6342 to tour your future home "HERE" or click "HERE" to estimate your home value