Homeowner Equity is Lowest Since 1945

Discussion in 'Economics' started by Tauvros, Mar 6, 2008.

  1. Tauvros


    Homeowner equity is lowest since 1945

    By J.W. ELPHINSTONE, AP Business Writer
    49 minutes ago

    NEW YORK - Americans' percentage of equity in their homes fell below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday

    Homeowners' portion of equity slipped to downwardly revised 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.

    The news follows a report from the Mortgage Bankers Association on Thursday that home foreclosures skyrocketed to an all-time high in the final quarter of last year. The proportion of all mortgages nationwide that fell into foreclosure surged to a record of 0.83 percent, while the percentage of adjustable-rate mortgages to borrowers with risky credit that entered the foreclosure process soared to a record of 5.29 percent.

    Experts expect foreclosures to rise as more homeowners struggle with adjusting rates on their mortgages, making their monthly payments unaffordable. Problems in the credit markets and eroding home values are making it harder to refinance out of unmanageable loans.

    The threat of so-called "mortgage walkers," or homeowners who can afford their payments but decide not to pay, also increases as home values depreciate and equity diminishes. Banks and credit-rating agencies already are seeing early evidence of this.

    On Tuesday, Fed Chairman Ben Bernanke suggested lenders reduce loan amounts to provide relief to beleaguered homeowners.
  2. moo


  3. nyc is the exception.
    even in the bronx, home prices have gone thr the roofs.
  4. surprised that they didn't use the comparison for inflation adjusted dollars with the

    1929 - 1934 scenario valuations

    probably for political reality reasons......

    you think?

    hey, here's a thought.....

    4 more years

  5. New York isn't immune. Maybe pockets of it are, but just wait until mass layoffs sweep over the financial firms...

    ...not the type of layoffs you've seen thus far - the kind that slice the brokerage firms and investment banks by 33% to 50%.
  6. The layoffs in the Financial Industry are on their way. Banks such as CITI, BAC, WAMU, WACHOVIA are all ready in back room meetings.

    Not sure about the brokers. JPM, MER, GS, MWD, and the wana be houses like Ameriprise, Raymond James, etc will all follow the banking industry here shortly.

    However, the consumer and the "sheeople" are not really worried from what I have read.

    Homeowner Equity being low is "regional". There are some solid and still strong RE markets. This "Crash" is not nation wide but "Region" wide.

    Plenty of "Smart" buyers or soon to be New Home Owners, Investors as well, sitting and waiting to swoop in and pick up cheap new homes. "Re-sales" will be even cheaper.
    The last laugh will be from the Homebuyer in the next decade because they "Sat out" the BULL RUN and will benefit from the 'mistakes' of plenty.

    Things are not going to get to bad this summer, it will hurt, but not as bad as after the election.

    Hell, we may even see one more run for 14000, a last hurra this summer, a true "BEAR RALLY". I think if we break 11500 we could sell to 11000, break that number and head back up to 13500 or so before we truly tank.

    Just a hunch.

  7. Do bin Laden's work for him and get Bush/ Cheney in a third time!

  8. why is manhattan seemingly untouched by real estate crisis?
  9. Why would that wipe them out? I know plenty of people with less equity than 30% who would not be wiped out by such a decline. They would continue working and pay their mortgages as they are doing now.
  10. NazSpaz


    They have to support prices there so Yankee season ticket holders can keep getting equity loans to support that fat team salary needed by the players for their 'roids and HGH. :D
    #10     Mar 7, 2008