Skip to comments.Home Equity Falls Below 50 Percent
Posted on 03/06/2008 9:36:15 AM PST by 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.
and yet, Dems still pledge to raise taxes on America for their healthcare initiative
I believe that this value will continue to fall for some time. I further believe that when this value turns positive it will be a powerful signal to indicate the bottom of the market has or is just about to occur. In other words, don’t buy if you can avoid it until this indicator goes positive.
Does this count negative equity? Or is 0% as low as you can go for this calc?
and yet, Dems still pledge to raise taxes on America for their healthcare initiative...
Washington, and specifically the Dims, remains TOTALLY OUT OF CONTROL. They are methodically and insanely destroying America with excessive taxation and regulation, malfeasance, disregard for the Constitution and our system of laws. We see its disasterous impact daily now.
That's when houses were $5000. Some people pay that much on their mortgage every month now.
Good question. I think they take the value of all homes and compare to the amount of all mortgages. I think they do count individuals with negative equity in this calculation.
“..... big socialist government will save you and stick all the other home owners who are paying their bills on time with the tab.”
This is exactly what is going to happen.
It is already happening with increasingly insane cost of “higher education”: funding for those who CHOOSE not to sacrifice for their children’s education paid for by those that are.
If what you owe is more than what the house is worth, then you have -zero- equity. I guess this story is saying more people are upside down than have equity. (?)
When you are upside down on your loan (owe more than the value) I guess you could say it is negative equity?.
I doubt that the people for whom the Dems pledge to raise taxes are the ones suffering forclosure on their primary residences, or if they are they should have been smart enough or educated enough not to make foolish investments at 100% financing. Of course there are probably people with higher incomes who made investments or bought a McMansion that they may no longer be able to afford, but at least if they have enough income to be the target of higher taxes, they also have enough income to afford health insurance.
Wasn’t Bush the one, who stepped into office promising to establish a culture of american private ownership ?
Now it’s safe to say that failure is getting an all new standard set at the moment.
You had to be deaf, dumb and blind not to see this coming. I decided to stay put and pay off my home five years ago instead of buying a bigger house like many of my friends and I’m glad I did.
It is already happening with increasingly insane cost of higher education: funding for those who CHOOSE not to sacrifice for their childrens education paid for by those that are.
You think education costs are bad now...wait until libs (McCain included) get this DREAM Act passed.....and we subsidize illegal alien college education. Talk to me about education costs then.....
Of course the amount of equity has dropped! That’s what several years of a building boom will do for you. When the masses are buying new houses, they aren’t going to have a lot of equity.
This just echoes the fact that millions of Americans are well-off enough to have bought new houses recently.
That’s a good thing.
This must be vs mortgage value, not new value.
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.
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.
Take the balance of your mortgage now. Divide by the value of your house now. Repeat for the entire country.
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.
What’s the homeowner equity situation like in Germany?
"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
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?
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.
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.
How many people know that you can’t claim a capital loss on the sale of a house any more?
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.
When could you?
Yes, income taxes were killing us. I borrow just enough to offset the taxes and still complete a project.
But, but, it’s frrrreeeeee!! /s
That’s after they jack gas prices up by reducing oil companies’ tax credits.
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.
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.
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.
“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
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.
“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.”
I suppose I could skew everything, too. I do happen to work in the real estate industry, and I know exactly what’s been going on the last few years.
I guess I should just say somebody’s gotta pay the piper. The media can’t have it both ways.
Exactly right. The old time news industry is where there's been big time mass lay-off's, and you'll never see any tears from me for those lost jobs..
People like my parents bump the average. We built their home ourselves. They bought the two acres for $5,000 back in 1967 and we built the house in sections as the money came in. It is a nice 2,500 sq. ft. rambler.
They just sold off one of the acres for $525,000.
It’s people like an old friend of mine that drops the average: They bought their home in the mid-1970’s for $17,000. They currently owe more than it’s worth thanks to refinancing-as-ATM - $280,000.
This is really stupid.
Watch the government will bail them out too for their STUPID decisions.
>>and yet, Dems still pledge to raise taxes on America for their healthcare initiative<<
Talk of a health care initiative only works when there is a chicken in every pot. When things go bad, people worry about other stuff. ‘Course, if you elect someone that says big bad business will pay for it all...
Um... How well off did you have to be to get a reverse mortgage, Option Arm, 120% NINJA liar loan? Are these well off Americans being foreclosed just because they don't feel like paying their mortgages? Maybe it is all going to vacations, furs and Grey Poupon?
I am not referring to people who have reverse mortgages. The number of reverse mortgages out there is very small in comparison to all the other outstanding home loans. Very small.
Is this just a regular annual revision similar to what is described here? Is so, I'll just continue to revise graphs when they get too out of date and I have the time. Regarding household net worth, I revised that graph just a couple of quarters ago. Anyhow, thanks for the heads up.
I don’t know for today but in 2002 it was over 65% (a little more in the east) of peoples equity. That number referres only to homes that are used by the owner.
There’s a strong tendency for building expensive homes in swabia - a quite rich area of germany - there the numbers for home equity that are NOT in self usage are higher then in other areas. In the relatively poor east homes and land is so cheap - it’s the first thing people will buy - especially because they know times when private property was extremely restricted.