Its early. And the real estate types tend to move slower than traders. They haven't got used to the idea that though "theyre not making any more land" the prices are still heading down. Their house isn't their 'biggest investment' and real estate doesn't always go up afterall. The Fed driven bubble has burst. Joe the Flipper is screwed. Banks haven't gotten real on their REOs . . . yet. - - - And the longer term prospects ? How about all those boomers deciding to downsize as they begin entering their drooling years ? (Even more important now since alot of their retirement money went up in smoke in the stock market.)
I don't know...it might be near truth. "Homeowners' percentage of equity slipped to a revised lower 49.6 percent in the second quarter of 2007" http://www.forbes.com/2008/08/05/equity-cities-foreclosure-forbeslife-cx_mw_0805realestate3.html now take that a year or so later...and still declining.
This is one of those "averages vs. individuals" problems. That data also covers all housing, not just all mortgages. Thus, for every house that was refi-ed to the max (0% equity remaining), there's probably a house with no mortgage (100% equity). Moreover, people who trade-up probably made downpayments of 20% or more (I know I did) to avoid paying mortgage insurance and/or to avoid going over the conforming loan limit. These folk don't need to wait 20 years to get to 50% equity. The larger point is that there are lots of houses on both ends and the entire range of the equity spectrum. Thus, if houses fell 50%, then it's not that all mortgageholders would break even. Instead, some mortgageholders would break-even, but many would lose (some would lose up to 50%). And if housing prices fall 50%, then some homeowners would be deep underwater and some would still have 100% the much-reduced equity. One confirming datapoint is that prices have fallen about 15-30% (depending on the location) and about 25% of mortgages are underwater.
I just spent the morning going to open houses in NW boston metro and apparently the boom times are still here, people seemingly haven't heard of the housing bust nor the recession. How this region has remained so immune is beyond me. I was told by 3 realtors that the crisis was over now that the stimulus has passed and everyone gets $15K just for buying a house (err no it hasn't yet and we don't know if there are income limits but i'd bet good money there will be) and the banks will be bailed out this week. I asked them if they had read Peggy Noonan's colum about GS head LOL.
The more I think about it, the more plausible it seems. The biggest piece is that I was thinking in terms of reducing loan principle to 1/2 (which takes over 20 years) and attaining 50% equity, which with sizeable down payments and appreciation can be achieved much more quickly, as you correctly point out. Upsetting that banks could get so out of shape over a relatively smaller (given my new frame of thought) percentage of mortgage borrowers. For both the average home equity to be around 50% and a 20% price decline to push 25% of mortgages underwater, the distribution of houses on the equity spectrum must be heavy at each end (like an up-side down bell curve). interesting...