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Monday, 25 February 2008 12:43 |
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The real value (in 2007 dollars) of real estate owned by American households has increased from $2.18 trillion to $20.15 trillion since 1952, as shown in Chart One. The portion of this that represents homeowners' equity in their homes has increased from roughly $1.75 trillion to over $9.65 trillion. These increases reflect the growing population, the increase in the homeownership rate, and the increase in the value of houses and the land they're built on.
In another sense, however, homeowners' equity has been decreasing. In our book, Homeowner or Tenant?, we document the decrease in homeowners’ equity as a proportion of the value of their homes from 1975 through 2005. Chart Two below reproduces this data from 1952 through the fourth quarter of 2007. In 1952, homeowners maintained just over 80 percent of the value of their homes in equity – the remainder financed by mortgage debt.
This home equity share has sharply declined since then, falling to a record low of 47.9 percent during the fourth quarter of 2007. This largely reflects increased mortgage borrowing by homeowners, who have taken on larger debt to buy their homes and increasingly spent down their equity via home equity loans. In short, the value of homes has increased greatly since 1952, but mortgage debt has increased even more.
This share varies widely across households. Roughly one-third of homeowners have 100 percent equity (i.e., they own their homes “free and clear”). At the other extreme, one in ten homeowners now have "negative equity" - their mortgage debt exceeds the value of their homes. Data courtesy of Federal Reserve. Note that this article has been updated to reflect the March 6, 2008 release of the Federal Reserve Flow of Funds data.
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