The Unprecedented Equity Advantage

Across the United States, homeowners are sitting on a substantial equity cushion, providing a buffer against potential economic downturns. Years of consistent home-price recognition have resulted in an average loan-to-value (LTV) ratio of 46.9% across all outstanding mortgages. This figure represents a notable drop from 70% in 2013, highlighting the increased financial stability of homeowners.

This equity position is particularly crucial given the evolving economic landscape under the current administration’s policies, including new tariffs. These policies introduce uncertainty, but the strong equity base offers a degree of protection for homeowners.

Underwater Mortgages: A Diminishing Threat

The vast majority of mortgage holders, approximately 82%, possess at least 30% equity in their homes. This high level of equity substantially reduces the risk of homeowners finding themselves underwater, even if home prices experience a dip in 2025. Data from the Federal Housing Finance Agency (FHFA) indicates that only 0.3% of borrowers had negative equity at the close of 2024.

This contrasts sharply with previous economic downturns, where widespread negative equity exacerbated foreclosure rates. The current scenario suggests a more resilient housing market.

The Power of Low Fixed Mortgage Rates

Beyond the substantial equity cushion,the prevalence of low fixed mortgage rates provides another significant advantage for existing homeowners. These historically low rates translate into manageable debt payments, offering financial flexibility even in a slowing economy.

Specifically,at the end of 2024,82% of mortgages carried a rate below 6%,with a remarkable 54% boasting rates below 4%. These ultra-low payments provide a financial safety net for homeowners facing potential job loss or economic hardship.

Mortgages as a Top Financial Asset

In previous recessionary cycles, job losses often forced homeowners to sell, leading to foreclosures when homes were underwater. However, the current landscape presents a different dynamic. For many, their mortgage may be their best financial asset.

Consider the homeowner with a 2% or 3% mortgage. Their monthly payment is likely cheaper than renting or downsizing. As such, these homeowners are more likely to prioritize keeping their mortgage current, even at the expense of other financial obligations. This represents an unprecedented dynamic in any pre-recessionary period we’ve ever experienced.

Debt Burden: Historically Low

Monthly mortgage principal and interest payments,excluding property taxes and insurance,are near long-term lows as a percentage of income across the homeowner spectrum,including those without mortgages. This debt load, which peaked at 9% during the housing bubble of the late 2000s, now stands at 5.7%.

Delinquency rates: A Fading Tailwind

the favorable financial conditions have resulted in low mortgage delinquency rates. However, this tailwind is beginning to fade as more borrowers face higher payments, increasing the likelihood of missed payments. As of the fourth quarter of 2024, only 3.6% of all borrowers were in any stage of delinquency. The number of people with early-stage payment troubles, those who are 30 days late, has increased back to the still-low pre-pandemic levels of 2019.

Broader Economic Context and Outlook

while housing demonstrates strength, the broader American economy presents a mixed picture. Corporate profits remain high, and unemployment is low. However, these conditions are subject to change, particularly with the implementation of new tariffs. While rising inventory and weak buyer demand may lead to home price dips, existing homeowners, with their affordable mortgages and low debt levels, may serve as a crucial buffer against economic turbulence.

Conclusion: A Resilient Housing Sector

the combination of high homeowner equity and low fixed mortgage rates creates a resilient housing sector capable of weathering potential economic storms. While challenges remain, the financial stability of homeowners provides a foundation for stability in an uncertain economic surroundings.