Home Equity Hits a Record Low PDF Print E-mail
Written by Kerry A. Lynch   
Wednesday, 15 July 2009 00:00

Americans’ percentage equity in their homes has decreased to a new low, according to data released by the Federal Reserve last month.

Homeowners’ equity fell to 41.4 percent of the total value of household real estate at the end of the first quarter of 2009. This percentage has decreased sharply since the end of 2005. It first fell below 50 in the fourth quarter of 2007 – marking the first time that homeowners’ mortgage debts exceeded their equity in their homes since 1945, when the Fed’s data begin.

Homeowner's Equity as a Percentage of Household Real Estate

The total value of household real estate fell for the ninth straight quarter, to $17.9 trillion. It has fallen by 18 percent since the end of 2006, when it reached a historical peak of $21.9 trillion.

Homeowners’ percentage equity has been decreasing for decades. Until recently, the decline was attributable to increased borrowing, as households relied on ever-larger mortgages to buy their homes and used home equity loans to finance other spending. The total value of such debt doubled between 2001 and 2007.

Since 2007, however, this borrowing has slowed and some mortgage debts have been written off as a result of foreclosures. Thus, the sharp drop in homeowners’ percentage equity since then is attributable not to increased borrowing, but entirely to the unprecedented downturn in the market value of homes.

 

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Comments (2)
Inflation vs deflation
2 Thursday, 16 July 2009 06:50
Ed Buckley
I believe that inflation is almost inevitable.First,we still have continuing inflation(as measured by CPI),albeit "small".Secondly,while there will be a degree of "Japanesation" of the American consumer,we are still a growing population,as opposed to the shrinking Japanese population.The japanese were also net savers,unlike our own
profligate generation(I'm a boomer).Third,I have faith in the fed's inabillity to remove the astounding amount of liquidity they've pumped into the system in time to prevent more bubble blowing.
I would ask how inflation is being defined here.That we have monetary inflation now I believe to be undeniable.How this will play out in assorted prices can never be guessed ahead of time.Bubbles are not blown evenly;at least not usually.There were articles by respected economists in the
Wall Street Journal argueing housing was not in a bubble,but
that prices were actually justified!Another year or so of a
deflating bubble is quite probable.I am listening to Prof.
Schilling(of Case -Schiller fame)argue on Bloomberg radio as
I type,argueing the case for continued deflation."If people
save they can't spend"goes the argument.Where,then,does the money to borrow come from?The '70's show is near.
HOME EQUITY
1 Wednesday, 15 July 2009 15:32
RJALLO
WHILE MANY ECONOMISTS HAVE BEEN SUGGESTING INFLATION DUE TO THE INCREASE IN GOVERNMENT SPENDING. HOWEVER A LOOK BACK AT JAPAN'S RECESSIONARY PROBLEMS THAT CONTINUED FOR OVER FOR OVER TEN YEARS...ONE MIGHT SUGGEST THAT WE MAY BE IN FOR SIMILAR PROBELMS....DELFATION NOT INFLATION....

SOMETHING TO THINK ABOUT????

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