The Walletwyse Home Equity Index estimates positive equity in owner-occupied homes for U.S. states, cities and Zip Codes. The index demonstrates the extent to which home valuations exceed outstanding mortgage balances (and occasionally, the opposite).
The methodology for calculating positive equity is somewhat complex, but at Walletwyse we believe transparency is our most valuable asset, so publishing our methodology for any new index is a self-imposed requirement.
Working backwards, equity is the simple difference between value and debt. Home values are fairly straightforward, so let's start there. We relied on the fabulous datasets compiled by Zillow and Trulia to establish median home value for the last six months of 2018 across U.S. Zip Codes.
Estimating debt is a more difficult exercise. First, we analyzed outstanding mortgage balances by CBSA using Loan Performance Data provided by Fannie Mae. Because Fannie insures or purchases more than 90% of U.S. mortgages, the agency's data offers unparalleled insights into how the market is structured.
Because our home values were at the Zip Code level, we converted from CBSA to Zip by approximating standard deviation using a modified z score obtained from the median absolute deviation. Upward and downward adjustments to the mortgage balance were limited to three standard deviations (99% confidence interval), which is why you'll occasionally see the same "Estimated Home Equity" among the highest or lowest-value Zip Codes in a particular area. In cases where CBSA data was not available, we applied the same transformation methodology to state-level data.
Using U.S. Census data for the most recent year (2017) allowed us to obtain the total number of owner-occupied homes in a given Zip Code and also to estimate at a high level of accuracy the number of homes not subject to a mortgage in the same area. Total equity was then calculated by adding together the sum of two products: the number of free-and-clear homes by median value; and the number of mortgaged homes by estimated outstanding equity.
Finally, because the resulting numbers trend larger than most people are used to thinking about, we had a bit of fun establishing context by referencing comparable big-ticket values for each Zip Code and metro. For instance, did you know the total equity of owner-occupied homes in New York City ($750B) is approximately equal to the market capitalization of Alphabet, the parent company of Google? Or that the equity in one Zip Code on Manhattan's Lower East Side ($16.5B) is about the same as the value of Turkey's 253 tons of gold reserves?
We will be publishing the Walletwyse Home Equity index for a different metro at least twice a week throughout the first quarter of 2019. Upcoming metros, along with the release dates, are listed below and will be updated over time.
Thursday, January 17: Seattle, WA
Tuesday, January 22: New York, NY
Friday, January 25: Tucson, AZ
Friday, February 1: Boston, MA