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Archive for Friday, June 10, 2011

Americans’ equity in homes near record low

June 10, 2011

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— Falling real estate prices are eating away at home equity.

The percentage of their homes that Americans own is near its lowest point since World War II, the Federal Reserve said Thursday. The average homeowner now has 38 percent equity, down from 61 percent a decade ago.

The latest bleak snapshot of the housing market came as mortgage rates hit a new a low for the year, falling below 4.5 percent for a 30-year fixed loan. But even alluring rates have failed to deliver any lift to the depressed housing industry.

The Fed report is based on data from the first quarter of this year. Another report last week found that home prices in big cities have fallen to 2002 levels.

Normally, home equity rises as you pay off the mortgage. But home values have fallen dramatically since the bubble in prices burst in 2006. So many homeowners are losing equity even though the outstanding balance on the loan is getting smaller.

Nicole Rosen’s home in tiny Spanaway, Wash., just outside the military base where her husband works, has lost $150,000 in value since she paid $275,000 for it in 2006. She has battled mortgage lenders in court for two years to stay out of foreclosure. In the meantime, the couple are paying off credit cards, figuring it’s the only “positive thing we could do.”

“We’re paying off all our debt. We only have $200 left on our credit cards. But we’re stuck in our house,” Rosen said.

Home equity is important for the economy because it has a lot to do with how wealthy people feel. If they feel swamped by a mortgage loan, they’re less likely to spend freely on other things. Home equity also serves as collateral for some loans.

There are 74.5 million homeowners in the United States. An estimated 60 percent have a mortgage. The rest have either paid off the loan or bought with cash.

Of the people who have mortgages, 23 percent are “under water,” meaning they owe more on the mortgage than their home is worth, according to the private real estate research firm CoreLogic. An additional 5 percent are nearing that point.

The outlook for the housing market remains dim.

Fixed mortgage rates average 4.49 percent, extremely low by historical standards, and have fallen for eight straight weeks. But most people can’t meet tougher lending requirements. Falling rates make it easier to refinance, too, but many of the people who can afford to do that already have.

And foreclosures keep hammering the housing market.

Comments

Ron Holzwarth 3 years, 6 months ago

This whole article strikes me as a fantasy game played with numbers.

First off, what's the actual value of a home? It's selling price? Or its utilitarian value? Oh sure, you can say either one, but the utilitarian value is the one that is more likely to be stable, and this article was written upon the assumption that the value of a home is the selling price. Well, they were selling for far, far more than they could ever have been "worth", everyone knows that now.

And sure, the average equity is way down, but the values only a few years ago were pure fantasy, driven up by very creative mortage products and ridiculous speculation.

And what about the value of the dollar? It's worth only a bit more than half what it was ten years ago.

So, the statement that "The average homeowner now has 38 percent equity, down from 61 percent a decade ago." means just about nothing at all.

Richard Heckler 3 years, 6 months ago

There are something like 11 million homeowners quite close to foreclosure like due to losing those jobs that went abroad. Now these folks can no longer afford their homes.

It also means that millions of homes were purchased during the reckless "boom town economics" game in which millions owe more than todays market value... Yep there must be several right here in Lawrence,kansas.

Those values coming from Douglas County may well be more than market value but is a source for tax dollars that fund Douglas County and Lawrence.

Without inflated property values City Hall might be forced into bankruptcy except that we taxpayers are hit with higher utility rates(tax increases) to help cover the shortfall.

Which makes one wonder why in the world does the city continues to annex and build NEW infrastructure? This is expanding our tax dollar liabilities in a big way while no one knows when the impact of the mammoth Bush/Cheney home loan fraud and the war for oil control will begin to recede. If ever.

Ron Holzwarth 3 years, 6 months ago

I don't believe that. If you're going to speculate it would be very risky and maybe a sure loser, but would you rather be paying rent? You'll never build up equity paying rent. And you do need to have a place to live.

And some people really don't care because they can afford to pay cash and feel that they need and want a house right now, and if the selling price goes down, so what?

tomatogrower 3 years, 6 months ago

And people can decorate how they want, and make it their home. They don't have to be subject to the whims of a landlord. When I was young and attractive I had a landlord come on to me. I can have pets in my own home. I can hang as many pictures as I want. I can paint it purple if I want. And most importantly, I don't have to worry about signing a new lease every year. There are other reasons for owning your own home other than equity or money. Everything comes down to money in our society. Pretty sick.

Ron Holzwarth 3 years, 6 months ago

A landlord once snickered at me, because I had practically paid for my half of the duplex that I rented when I moved out!

Richard Heckler 3 years, 6 months ago

Obama blaming Bush/Cheney/Paulson etc etc

GW/Cheney walked into some fairly strong economic presence left behind by Clinton.

Face it folks Obama walked into quite a big time mess left behind by Bush/Cheney/Paulson that would be very hard to fix in a few years.

The Bush/Cheney party has been stiff competition in that the Bush/Cheney party do not want to fix anything because that would further damage their standing such as a new strong economy. And new jobs would flat ruin the Bush/Cheney party.

Now having said all of that we may as well recognize the USA economy would NOT BE WRECKED had it not been for this:

Wall Street Bank Fraud on Consumers under Bush/Cheney http://www.dollarsandsense.org/archives/2009/0709macewan.html

Bush and Henry Paulson blew the $700 billion of bail out money? http://www.democracynow.org/2009/9/10/good_billions_after_bad_one_year

After watching the Bush/Cheney party for 8 years it seems they had zero clue how to manage an economy . Further they seemed incompetent in their ability to stimulate new industry that would have strengthened the economy by millions of new jobs.

The Bush/Cheney party was an absolute failure which was compounded by war which required lying to the entire world.

The Bush/Cheney Party in fact brought about massive problems and laid those problems in the lap of the Obama adminstration.

The Bush/Cheney party were also mammoth failures at protecting USA security by not heading off 9/11/11 which also hit the economy with a massive negative.

Flap Doodle 3 years, 6 months ago

merrill, we know how much you miss President Bush, but he's no longer President. You just have to move on at some point and stop living in the past.

Richard Heckler 3 years, 6 months ago

Anyone buying a home today will likely owe more than it could be sold for in 1 year even in Lawrence,Kansas.

Lawrence has a way of inflating the market value of homes in Lawrence,Kansas.

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