Posted on 05/15/2009 7:01:50 AM PDT by FromLori
Homeowner equity--the value of the part of our houses that we actually own--will likely end up down 70% from the peak. Think that will affect our spending?
Everyone knows that U.S. house prices have fallen almost 30% from the peak. What is less well known is that Americans' equity in those houses--the part that American homeowners actually own--has fallen much further. Why? Because, despite all the foreclosures and write-offs, our total mortgage debt has only dropped slightly from its peak.
When value falls and debt stays the same, equity gets crushed (See The Problem With Debt). If house prices end up falling more than 40% peak to trough, which seems likely, U.S. homeowner equity will drop more than 70% and as many as half of American mortgage holders will be underwater.
For most consumers, one's house is one's biggest source of wealth. Economists have demonstrated that a loss of wealth leads to cuts in spending--from psychology and necessity. A 50%+ drop in home equity is one whopping-big loss of wealth. And it will have a lasting impact on consumer spending.
(Excerpt) Read more at businessinsider.com ...
They are rewriting the books as we speak.
always wondered about home equity wealth. I live in my house. I wouldn’t consider it an investment until it might be time to sell.
Some of us are well insulated by outright ownership or extremely high equity. We also have a lot of cash ready to buy up some destressed assets. Maybe the ants will win this one after all..unless Zero taxes us out of wealth.
That’s a big unless. Zero will certainly try to “make things fair” by taking away our assets.
We recently paid off our mortgage, but still need to deal with outlandish property taxes, increasing insurance costs and the highest sales tax in the country. Oh Yeah, our new governor wants to raise the state income tax by 50%.
Guess where we live?
Suburban Cook County.
Same here but I was taken to task for saying it on another thread. My home is where I live, not an investment. Even if I were to sell it, I'd still need another place to live.
LOL - right on
We busted our hump and go our home paid off in 14 years. I can remember when morgauges were for 15 years.
The home my parents live in was purchased for under 15K. it is just over 1000ft2. so, about $15/ft2. (purchased in mid 1960s)
We figure our modest home cost under $50/ft2 -when purchased in 1991. (not bad for Alaska)
My married daughter (and her swell hubby) bought a home 4 years ago - 900/ft2 for just under 200K - you do the math. A 30 yr loan was the only way to get into a home.
Is the price of housing is out of control? Or had seculation been the driver - now that the bubble has burst, the role of fraud, and speculation is being exposed.
At least with falling prices, hard working younger folks may have a shot at owning a home.
My only wish is that we could get a prop 13 type of cap on property taxes here....
Here is a thought.
under bankruptcy law as it stands today. On investment real estate property you can strip a mortgage down to the value of the current value of the real estate where the asset has decreased in value. HOWEVER, on primary residence you can not do that for a first mortgage regardless of how much the value of the property has decreased.
The THEORY is that people will overpay to keep their homes over thier heads. The reality is the 45% decrease in value of homes has made it reasonable to abandon a current primary residence in favor of an identical less expensive primary residence. The prices of homes are still being artificially inflated by shadow inventory being witheld by the banks and obmanomics.
by attacking the secured creditors in bankrupcy Obama is attacking the ants who prepared for winter.
A secured creditor lends because there is SOME KIND of security on the loan. By encroaching on the duty of the courts to uphold contracts, he is transfereing not only wealth but power from the legislative and judicial into and imperial autocratic president.
I think you're spot on. Real estate can be an investment, but not when it's your primary residence. If you happen to sell your primary residence for more than you paid for it, it should be considered a bonus; if you break even, you're still lucky, and doing much better than those who've rented for years.
My real estate taxes went up this year, I doubt that my home has increased in value. Small amount (about $30 per year) but still an increase.
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