• Guest, The rules for the P & N subforum have been updated to prohibit "ad hominem" or personal attacks against other posters. See the full details in the post "Politics and News Rules & Guidelines."

US Homeowner Equity Is Lowest Since 1945

jpeyton

Moderator in SFF, Notebooks, Pre-Built/Barebones
Moderator
Aug 23, 2003
25,387
140
116
The housing market is setting all kinds of records recently. Steepest price declines in 20 years. Lowest percentage equity since 1945. Foreclosures are at an all time high. We're seeing this trend reflected on other areas of borrowing too; it seems our country, from top (federal government) to bottom (citizens) is addicted to reckless borrowing and racking up record amounts of debt. The number of people upside down on their mortgages is projected to increase to 16% of households as prices continue to drop with no relief in sight for at least 2 years; the negative equity situation will only get worse.

Text

By J.W. ELPHINSTONE

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.
 

StageLeft

No Lifer
Sep 29, 2000
70,214
2
0
These no or negative equity financial numbers are the only ones that come out that I'm part of. Darn :)

I remain surprised this group of upside downers is so small (10%). Maybe I shouldn't be, though. My excuse is I'm young and spent the money on blow.
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.
These punks will not be able to file for bankruptcy with the same efficacy as a few years back though, right? How do they benefit if they cannot get let off the hook?
 

fleshconsumed

Diamond Member
Feb 21, 2002
6,023
1,395
136
One out of ten owes more than his house is worth? To me that sounds high, really high.
 

StageLeft

No Lifer
Sep 29, 2000
70,214
2
0
Originally posted by: fleshconsumed
One out of ten owes more than his house is worth? To me that sounds high, really high.
It is. I just thought maybe it would be higher. It does mean that 10% of the pop is basically stuck in their house or if they had to move would have major problems with cash flow.

 

EagleKeeper

Discussion Club Moderator<br>Elite Member
Staff member
Oct 30, 2000
42,599
5
0
Originally posted by: fleshconsumed
One out of ten owes more than his house is worth? To me that sounds high, really high.
Options:
1) Housing prices are plumetting due to lack of buyers in the area (for any reason)

2) People purchase over inflated housing with the intent of flipping to other suckers

3) People purchased with adjustables that are exceed their budget

4) People were pushed into a over priced house expecting the market to catch up.

 

jpeyton

Moderator in SFF, Notebooks, Pre-Built/Barebones
Moderator
Aug 23, 2003
25,387
140
116
Originally posted by: Skoorb
These punks will not be able to file for bankruptcy with the same efficacy as a few years back though, right? How do they benefit if they cannot get let off the hook?
The only two main consequences for mortgage walkers are:

1) Foreclosure
2) Bad credit

They must obviously be fine with the first consequence since they are choosing to abandon their mortgage. The second consequence is less damaging than bankruptcy, but still damaging enough that they won't be able to get another mortgage in the near future (not that they should get one if they f***** up so badly on the first one).
 

Robor

Elite Member
Oct 9, 1999
16,991
0
0
Originally posted by: jpeyton
Originally posted by: Skoorb
These punks will not be able to file for bankruptcy with the same efficacy as a few years back though, right? How do they benefit if they cannot get let off the hook?
The only two main consequences for mortgage walkers are:

1) Foreclosure
2) Bad credit

They must obviously be fine with the first consequence since they are choosing to abandon their mortgage. The second consequence is less damaging than bankruptcy, but still damaging enough that they won't be able to get another mortgage in the near future (not that they should get one if they f***** up so badly on the first one).
Can you honestly blame them? If you purchased a home 2 years ago for $200K and found it was now worth $125K (maybe an extreme example) would you continue to pay into that hole or walk out it?

We're probably close to what's owed on the mortgage on our place but don't plan on walking because 1) we have a good credit rating and want to keep it 2) rent would be similar to mortgage payment 3) morals (in that order). ;)
 

blackangst1

Lifer
Feb 23, 2005
20,494
724
126
Originally posted by: EagleKeeper
Originally posted by: fleshconsumed
One out of ten owes more than his house is worth? To me that sounds high, really high.
Options:
1) Housing prices are plumetting due to lack of buyers in the area (for any reason)

2) People purchase over inflated housing with the intent of flipping to other suckers

3) People purchased with adjustables that are exceed their budget

4) People were pushed into a over priced house expecting the market to catch up.
/Yep

And people need to put this in perspective. Youre only upside down if

1. The fair market value has dropped that far, or
2. You actually sell.

Otherwise it really doesnt matter. It's not like people are losing money. If you keep your house, when the market rebounds, youre back in the black.

I seriously doubt nationwide the majority of housing markets have dropped that far. Sure there are pockets of areas, but certainly not everywhere. Here in Phoenix we havent been affected that much.

Again, those in standard mortgages, which is most people, havent lost a cent. Its like stocks. If you have a 401k worth say, 300k, and the market takes a 10% dumps, even if ALL your stocks are part of that dump, you only lose money of you sell. If you wait 3-4 years, you'll be back up. So much tin foil in here.
 

heyheybooboo

Diamond Member
Jun 29, 2007
6,289
0
0
<--- Totally debt free since 2003

I don't know how you young chaps are going to do it, but yah better 'hunker-down'
 

heyheybooboo

Diamond Member
Jun 29, 2007
6,289
0
0
Originally posted by: blackangst1
Originally posted by: EagleKeeper
Originally posted by: fleshconsumed
One out of ten owes more than his house is worth? To me that sounds high, really high.
Options:
1) Housing prices are plumetting due to lack of buyers in the area (for any reason)

2) People purchase over inflated housing with the intent of flipping to other suckers

3) People purchased with adjustables that are exceed their budget

4) People were pushed into a over priced house expecting the market to catch up.
/Yep

And people need to put this in perspective. Youre only upside down if

1. The fair market value has dropped that far, or
2. You actually sell.

Otherwise it really doesnt matter. It's not like people are losing money. If you keep your house, when the market rebounds, youre back in the black.

I seriously doubt nationwide the majority of housing markets have dropped that far. Sure there are pockets of areas, but certainly not everywhere. Here in Phoenix we havent been affected that much.

Again, those in standard mortgages, which is most people, havent lost a cent. Its like stocks. If you have a 401k worth say, 300k, and the market takes a 10% dumps, even if ALL your stocks are part of that dump, you only lose money of you sell. If you wait 3-4 years, you'll be back up. So much tin foil in here.

The only 'problem' is that homes are financed over terms where you pay 2 to 3 times the principle in interest (not counting taxes, upkeep, insurance, improvements, etc) AND not discounting the mortgage deduction.

It's almost a 'razor-thin' line that people walk in hoping that the equity in their home progresses with the total investment. When that value drops 10-20% - - on the back end that's still a big chunk of value lost on your 'investment' in your home.
 

blackangst1

Lifer
Feb 23, 2005
20,494
724
126
Originally posted by: heyheybooboo
Originally posted by: blackangst1
Originally posted by: EagleKeeper
Originally posted by: fleshconsumed
One out of ten owes more than his house is worth? To me that sounds high, really high.
Options:
1) Housing prices are plumetting due to lack of buyers in the area (for any reason)

2) People purchase over inflated housing with the intent of flipping to other suckers

3) People purchased with adjustables that are exceed their budget

4) People were pushed into a over priced house expecting the market to catch up.
/Yep

And people need to put this in perspective. Youre only upside down if

1. The fair market value has dropped that far, or
2. You actually sell.

Otherwise it really doesnt matter. It's not like people are losing money. If you keep your house, when the market rebounds, youre back in the black.

I seriously doubt nationwide the majority of housing markets have dropped that far. Sure there are pockets of areas, but certainly not everywhere. Here in Phoenix we havent been affected that much.

Again, those in standard mortgages, which is most people, havent lost a cent. Its like stocks. If you have a 401k worth say, 300k, and the market takes a 10% dumps, even if ALL your stocks are part of that dump, you only lose money of you sell. If you wait 3-4 years, you'll be back up. So much tin foil in here.

The only 'problem' is that homes are financed over terms where you pay 2 to 3 times the principle in interest (not counting taxes, upkeep, insurance, improvements, etc) AND not discounting the mortgage deduction.

It's almost a 'razor-thin' line that people walk in hoping that the equity in their home progresses with the total investment. When that value drops 10-20% - - on the back end that's still a big chunk of value lost on your 'investment' in your home.
The market value of a home has NOTHING to do with interest/principle payments, or the balance of a loan. Unless I misunderstood you.
 

halik

Lifer
Oct 10, 2000
25,708
1
0
No shit, if you buy a house with an interest-only mortgage, you won't have any equity? Who would've thunk it...
 

halik

Lifer
Oct 10, 2000
25,708
1
0
Originally posted by: jpeyton
Originally posted by: Skoorb
These punks will not be able to file for bankruptcy with the same efficacy as a few years back though, right? How do they benefit if they cannot get let off the hook?
The only two main consequences for mortgage walkers are:

1) Foreclosure
2) Bad credit

They must obviously be fine with the first consequence since they are choosing to abandon their mortgage. The second consequence is less damaging than bankruptcy, but still damaging enough that they won't be able to get another mortgage in the near future (not that they should get one if they f***** up so badly on the first one).
Forgot 3) pay income tax for the 1099 you get when the bank takes a loss on your foreclosure
 

StageLeft

No Lifer
Sep 29, 2000
70,214
2
0
Originally posted by: halik
Originally posted by: jpeyton
Originally posted by: Skoorb
These punks will not be able to file for bankruptcy with the same efficacy as a few years back though, right? How do they benefit if they cannot get let off the hook?
The only two main consequences for mortgage walkers are:

1) Foreclosure
2) Bad credit

They must obviously be fine with the first consequence since they are choosing to abandon their mortgage. The second consequence is less damaging than bankruptcy, but still damaging enough that they won't be able to get another mortgage in the near future (not that they should get one if they f***** up so badly on the first one).
Forgot 3) pay income tax for the 1099 you get when the bank takes a loss on your foreclosure
Sounds fun.

I do bet some people have watched "Flip this house" and are currently upside down badly on homes they bought to try and mirror the show. I wonder how many. No joke, it must be in the thousands. The worst result I ever saw on that show was a break even. It shows complete morons flipping houses and making off like bandits.
 

IronWing

No Lifer
Jul 20, 2001
61,227
14,085
136
I've updated my home ownership graph with the new data. For 2007 I used the fourth quarter numbers as the story didn't give the equity rate for the year as a whole to match up to the census home ownership data for whole year 2007.

Home Ownership Graph

My "adjusted home ownership" rate is Home Ownership * % Equity. I don't have the ownership free and clear numbers for 2007 yet.
 

Atreus21

Lifer
Aug 21, 2007
12,017
571
126
I've got 30 grand of equity in my house.

None of which I've loaned to myself.
 

heyheybooboo

Diamond Member
Jun 29, 2007
6,289
0
0
Originally posted by: blackangst1
Originally posted by: heyheybooboo
Originally posted by: blackangst1
Originally posted by: EagleKeeper
Originally posted by: fleshconsumed
One out of ten owes more than his house is worth? To me that sounds high, really high.
Options:
1) Housing prices are plumetting due to lack of buyers in the area (for any reason)

2) People purchase over inflated housing with the intent of flipping to other suckers

3) People purchased with adjustables that are exceed their budget

4) People were pushed into a over priced house expecting the market to catch up.
/Yep

And people need to put this in perspective. Youre only upside down if

1. The fair market value has dropped that far, or
2. You actually sell.

Otherwise it really doesnt matter. It's not like people are losing money. If you keep your house, when the market rebounds, youre back in the black.

I seriously doubt nationwide the majority of housing markets have dropped that far. Sure there are pockets of areas, but certainly not everywhere. Here in Phoenix we havent been affected that much.

Again, those in standard mortgages, which is most people, havent lost a cent. Its like stocks. If you have a 401k worth say, 300k, and the market takes a 10% dumps, even if ALL your stocks are part of that dump, you only lose money of you sell. If you wait 3-4 years, you'll be back up. So much tin foil in here.

The only 'problem' is that homes are financed over terms where you pay 2 to 3 times the principle in interest (not counting taxes, upkeep, insurance, improvements, etc) AND not discounting the mortgage deduction.

It's almost a 'razor-thin' line that people walk in hoping that the equity in their home progresses with the total investment. When that value drops 10-20% - - on the back end that's still a big chunk of value lost on your 'investment' in your home.
The market value of a home has NOTHING to do with interest/principle payments, or the balance of a loan. Unless I misunderstood you.
Sorry for not making myself more clear.

I'm speaking of the value to you based upon the cash and sweat you put into your home- not what someone will pay you for your house in x years.

You want the equity in your home over X years to exceed the future value of the investment you make in it. People make the mistake of looking at their home as a savings account. It's not.

You are going to pay 2 to 3 times the principle in interest, fees, taxes insurance, maintenance, improvements, personal time (lawn mowing, landscaping, painting), etc.

Now I understand that this ""total cost""is offset by the standard mortgage deduction and other credits you may receive.

Let's say that you pay $175k for a home, $25k down, financed over whatever term you want.

The first thing you have done is tied up $25k of your capital.

And let's say over the term of the loan you pay:

$25k (down payment)
$150k (principle)
$110k (interest)
$40k (property taxes and assessments)
$20k (insurance)
$40k (maintenance & repair)
$25k (capital improvements)

$410k total

Everybody's different and I don't know about you, but I would say that I have spent 4,000 hours (at least) in the last 20 years working on my home. I'm not even going to try and account for that :)

It's basicly the same with the mortgage/credit deductions. There is no way I can accurately calculate it. In the first years it will be worth your federal tax rate times the amount of interest paid and will decline over the term of the loan (as your interest payments decline).

For the sake of arguement, let's say that totals $40k.

You are ""all in"" for around $370k.

Let's say our liitle senario plays out over 20 years and you sell your home for 3 times its initial value (or $450k).

Was it worth it for an effective $80k over 20 years??

If you lived in an apartment and saved $300/month at the end of that 20 years you most likely would have $150k or so in the bank with very safe and reasonable investments. And you would have an extra 4,000 hours to lust after the ol' lady :) or in the case of Larry Craig, hang out in airport bathrooms - lol

My point was that if sometime during that 'term' the value of your home dumps 10-20% that reduction in value will be reflected on the back end when you sell your home (thereby reducing your 'equity' or return).

I also understand that if you live in your home after you pay off your loan, you can put that $1100/month house payment in the bank.

So the lesson in all of this is to pay your house off in the shortest term possible so you can start saving that house payment.




 

PingSpike

Lifer
Feb 25, 2004
21,402
334
126
Despite all the blabbing by real estate agents, homes are not really "investments". They're a place to live that affords you a little more freedom then renting. I suppose you also get some tax advantages.
 

bsobel

Moderator Emeritus<br>Elite Member
Dec 9, 2001
13,350
0
0
Let's say our liitle senario plays out over 20 years and you sell your home for 3 times its initial value (or $450k).
The error in your example is you did not include rent saved. Even at 1k per month (12k per year) he sells and get the 240k in unpaid rents returned to him. So using this example, its $320k over 20 years. That rent is low (would likely be closer to 1400 or so based on the 175k value of the home), but I'm giving you the benefit of the doubt.

So the lesson in all of this is to pay your house off in the shortest term possible so you can start saving that house payment.
Thats certainy not the lesson. If you have a locked in rate in the 5-6 range your often better off investing that principal elsewhere.
 

bsobel

Moderator Emeritus<br>Elite Member
Dec 9, 2001
13,350
0
0
Originally posted by: PingSpike
Despite all the blabbing by real estate agents, homes are not really "investments". They're a place to live that affords you a little more freedom then renting. I suppose you also get some tax advantages.
Not true, many homes are. The issue is many people treat their primary residence as an investment, it usually shouldnt be treated as such. Second homes often are a mix of personal and investment goals.
 

Jhhnn

No Lifer
Nov 11, 1999
61,669
13,747
136
Heh. I strongly expect home prices to fall ~30% on average from their recent speculative peak, more in some areas, less in a few. That's over the next few years.

Why? Because that will put home prices back at the traditional price level of median homes selling for 4-5X median family income with mortgages in the traditional 6-7% range. That's really what people can afford, no matter what the real estate agent tells you. And that's really where the interest rate needs to be to attract investors.

We won't even talk about the creative financing traps, but rather about 30 year notes. Let's say you got a great rate, 5.5% or so. OTOH, if the value falls 30% in 3 or 4 years, you'll be upside down for at least another 8-10 years- you'd have to pay somebody to buy it, because this notion that the market will recover quickly is pure malarkey...

Because it'll take investors a very long time to forget the shellacking they're taking on mortgage paper. All the players in the chain ahead of them have to be very diligent wrt loan particulars, otherwise the bundled product simply won't sell. And in a capitalist system, the value of a product that won't sell is zero...

Which means buyers will need at least 5% down, plus closing costs, solid credit, low debt loads, with payments not to exceed 1/3 of their verifiable take home pay...

At today's wages, and anticipated wages over the next several years, that means the price has to stay down for a long time to reduce the glut of homes on and coming on the market for whatever reason...

Negative equity is a killer. Can't move if the neighborhood goes to hell in a handbasket or if you get offered a relocation promotion... If the local economy goes to hell but you have offers elsewhere... can't borrow against the equity when there isn't any, and can't borrow anyway because you debt load is already too high in today's cautious lending environment... can't even rent it out w/o taking a monthly hit for the foreseeable future...
 

Vic

Elite Member
Jun 12, 2001
47,859
8,186
126
Originally posted by: PingSpike
Despite all the blabbing by real estate agents, homes are not really "investments". They're a place to live that affords you a little more freedom then renting. I suppose you also get some tax advantages.
You're right that the home you live in should not be considered an investment (at least not a speculative one), but the reason to own your home is to own your home. If you rent, you're just making someone else's mortgage payment, because someone always owns it.
Otherwise, homeownership affords less freedom than renting and costs a lot more, as a lot of these people who bought at the top and now have neg equity are going to find out.
 

umbrella39

Lifer
Jun 11, 2004
13,820
1,123
126
<< Has never even been late on a mortgage payment in 13 years of "owning" and have never even considered any sort of loan on my equity. There was even a 6 year stretch in which I was 100% unemployed but still managed to make my payments in addition to going back to college for a third degree on my own dime. I forwent tons of wants for my family's needs. Perhaps it is heartless but I don't feel much pity for the vast majority of people in these predicaments right now. Personally, I think people roll over too easily now-a-days.
 

Ozoned

Diamond Member
Mar 22, 2004
5,583
0
0
Heh. By the time the current inflation cycle is over, your house will be worth 2 to 3 times what it is today, and your current mortgage payment will buy a bag of groceries. Some things never change.
 

ASK THE COMMUNITY