Just under two-thirds of homeowners saw double-digit increases in their home equity between March 2017 and March 2018 according to CoreLogic. That increase equated to a total gain of $1.01 trillion, which contributed to a decline in negative equity over the same period. The total number of mortgaged residential properties with negative equity fell 3% from Q4 2017 to the end of Q1 2018, a drop of 3.1 million homes year over year.
What Causes Equity Gains?
Most homeowners believe that their homes will automatically appreciate over time and equate appreciation and equity. However, the two are not the same. In real estate, appreciation is the increase in the value of the asset (the property) over time. It can be a result of increased demand, decreased supply, or other economic factors. Equity, on the other hand, is simply the value of an asset after the amount of debt owed on the asset is deducted. In a typical scenario, a property owner pays down their mortgage and, over time, those payments do add to the equity in the home.
Home-price growth accelerates equity growth, however, and can help build national home-equity wealth. “Home-price growth has accelerated in recent months, helping to build home-equity wealth and lift underwater homeowners back into positive equity, the primary driver of home-equity wealth creation,” said CoreLogic chief economist Frank Nothaft. He also noted the CoreLogic Home Price Index grew 6.7% during the same time period, which was the largest 12-month increase since 2014.
3 Ways to Increase Home Equity Via Home Improvements
Despite rising gains in equity, many homeowners are choosing to remain in their homes and improve them rather than selling those properties and buying new ones. According to NerdWallet, these three repairs and improvements are likely to accelerate appreciation in your property:
- Increased Curb Appeal
Landscaping, planting, and regular maintenance do not just impress the neighbors. They also help your home make a good impression and sell for more money when you put it on the market.
- Judicious Addition of Square Footage
According to Angie Martin, director of Hale and Associates in Overland Park, Kansas, “square footage has a huge impact on value.” Of course, add too much or the wrong type for the area, and you could just end up with a house that will never sell for what you put into it. Martin noted square footage is a standard method of comparison and suggested adding a deck or patio if that better fits your budget.
- Increase Energy Efficiency
Installing enhanced insulation, LED lighting, or double-paned windows decrease utility bills and increase potential price tag when owners sell. Energy-efficient mortgages (EEMs) enable borrowers to finance both energy-efficient upgrades and their homes at the same time, in some circumstances.