Home Equity Falls Below 50 Percent

Yahoo! Finance ^ | March 6, 2008

[Toddsterpatriot]

Federal Reserve Report Shows Homeowner Equity Dipping Below 50 Percent, Lowest on Record

NEW YORK (AP) -- Americans' percentage of equity in their homes has fallen below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday. Homeowners' percentage of equity slipped to a revised lower 49.6 percent in the second quarter of 2007, the central bank reported in its quarterly U.S. Flow of Funds Accounts, and declined further to 47.9 percent in the fourth quarter -- the third straight quarter it was under 50 percent. That marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945.

The total value of equity also fell for the third straight quarter to $9.65 trillion from a downwardly revised $9.93 trillion in the third quarter.

Home equity, which is equal to the percentage of a home's market value minus mortgage-related debt, has steadily decreased even as home prices jumped earlier this decade due to a surge in cash-out refinances, home equity loans and lines of credit and an increase in 100 percent or more home financing.

Economists expect this figure to drop even further as declining home prices eat into the value of most Americans' single largest asset.

Moody's Economy.com estimates that 8.8 million homeowners, or about 10.3 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9 percent, will be "upside down" if prices fall 20 percent from their peak.

The latest Standard & Poor's/Case-Shiller index showed U.S. home prices plunging 8.9 percent in the final quarter of 2007 compared with a year ago, the steepest decline in the 20-year history of the index.

[randita]

In other words, don’t buy if you can avoid it until this indicator goes positive.

Don't sell now either if you can avoid it. Wait until things pick up.

Might not be a bad time to build, though, because the price of building materials is down and builders are hungry for work.

[Camel Joe]

Ditto’s here. Got less than 30K left on the mortgage and NEEDED a HELOC to offset my taxes. Using the HELOC to fix up the old casa a bit at a time. Inside of 10 years I will have no mortgage and no HELOC either, interest is money you never get back.

[Toddsterpatriot]

This must be vs mortgage value, not new value.

Take the balance of your mortgage now. Divide by the value of your house now. Repeat for the entire country.

[madison10]

Just thrilled with the glowing news of the day. /sarc

What will happen when our troops return? The Greatest Depression or a Boom? Our military friends are having difficulty finding good jobs.

[Tolerance Sucks Rocks]

We're dooooooooooooooooooooooomed!

[Tolerance Sucks Rocks]

What’s the homeowner equity situation like in Germany?

[goldstategop]

Using one's home as an ATM machine and the depreciating real estate values accounts for the decline in home equity.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

[madison10]

Got less than 30K left on the mortgage and NEEDED a HELOC to offset my taxes.

Don't know much about this stuff...why did you need a HELOC to offset your taxes? Do you mean as a deduction on the interest?

[CharlesWayneCT]

No. What they are saying is people OWE more than what they OWN. Which was a very weird way of saying it, not meaningful at all.

The total debt for homes is now more than 50% of the total value of the homes. For an individual, a debt of 50% of the home value is fine — most people would be happy at that value.

But a LOT of people own their homes outright, or owe very little, so in order for the total to be at 50%, a lot of other people pretty much have NO equity, or worse owe more than their house is worth.

But the number itself doesn’t tell you how many are actually negative. With the refinance boom, a lot of people who previously owed a low percentage of their total value because their house went up in value while they paid off their mortgage, were now taking out new loans, often to 80% or 90% debt ratios.

So as they point out, even before the market turned south, the total debt-to-equity ratio was dropping. Again, a lot of financial advisors thought this was a good thing, because your money tied up in real estate was better used investing elsewhere.

Of course, now that home values are dropping, EVERYBODY who has a loan is seeing their “debt-to-equity” ratio increase.

[7mmMag@LeftCoast]

You are so inceredibly WRONG. The Dems will claim anybody making more than $30,000 a year is 'rich' and will raise thir base tax rate accordingly. Watch and see, every single level of the tax table will be increased. The middle class will get slammed with the brunt of any tax increase.

The health care debacle in this country is a direct result of the 1960's legislation that created medicare and every misstep to regulate the health care industry. The only result of continued government interferrence will be HIGHER medical costs and DEGRADED medical care for all but the very wealthy and the politically powerful. Welcome to Canadian and European style health care.

[DManA]

How many people know that you can’t claim a capital loss on the sale of a house any more?

[meowmeow]

Our military friends are having difficulty finding good jobs.

As a defense contractor in the DC area, every company I know of is desperate for bodies. And there's no one they'd rather hire than a former A/AF/N/M vet. Of course it's horribly expensive here, but the pay is good.

[Toddsterpatriot]

How many people know that you can’t claim a capital loss on the sale of a house any more?

When could you?

[Camel Joe]

Yes, income taxes were killing us. I borrow just enough to offset the taxes and still complete a project.

[Hoffer Rand]

But, but, it’s frrrreeeeee!! /s

That’s after they jack gas prices up by reducing oil companies’ tax credits.

[expat_panama]

"...you can’t claim a capital loss on the sale of a house any more..."

Sure you can.

On the freerepublic people can lay claim to anything they want; and with the IRS, gains and losses from property sales are reported on Schedule D.

[expat_panama]

Americans are well-off enough to have bought new houses recently.  That’s a good thing.

That's great Mister Smart Guy.  

OK, maybe you know a lot about real-estate, but you sure as hell don't know squat about getting copy syndicated with the AP.

[Centurion2000]

Don't sell now either if you can avoid it.

My ex wife is trying to sell a house her and her second ex husband bought together when they were playing house. I get to hear a litany of woe when I come pick up my son every other week.

I just keep thinking ... Schadenfreude.

[Wuli]

“The problem is not the 50%’s. The problem is the -30%’s”

statistics can easily present a deadly false impression

and there you are so correct

because the recent - past 2,3 year - home buyers, of whom a large number now have possible sale prices (if they MUST sale so soon) lower than what they owe on their mortgage

they skew the AVERAGE to a much lower rate than the numerical median (1/2 above, 1/2 below) would reflect

the more accurate number would be, numerically (how many), what portion of homeowners have less than 50% equity in their homes - NOT this non-informational AVERAGE for the equity overall

[expat_panama]

"Americans' percentage of equity in their homes has fallen below 50 percent for the first time on record since 1945."

The AP has gotten so wound up with the election rhetoric that they're missing the big news, namely that the Fed's gone and rewritten all their historical data going back to the '50's.  I know of at least two freepers who've got a lot of graphs to revise.

 The other is that the latest Flow of Funds is out and it shows real net work declining to levels we had two years ago.  Notwithstanding the goofy AP hype, this drop in the real estate equity component is barely noticeable with most of the losses being from stocks etc.

What's funny to me is that this drop is nowhere near the collapse we had in 2000 back when the Dem press was complaining about how Republicans were supposedly talking down our "wonderful" economy.