Home Equity Stakes Stumped

Americans' home equity stake, a victim of over-use, low and no-down payment financing and declining home prices, is at the lowest level since World War II.

by Broderick Perkins
© 2008 DeadlineNews.Com



Deadline Newsroom - The equity stake in Americans' most important asset has dropped to its lowest level since the end of the second World War.

Home owners' home equity slipped to 46.2 percent in the first quarter this year, the fifth consecutive quarter the rate was below the 50 percent market, according to the Federal Reserve's first quarter Flow of Funds report.

Home equity is the market value of a property, minus the mortgage debt. For example, if a property is worth $300,000 and the mortgage debt is $150,000, the equity stake is $150,000 or 50 percent.

Home equity levels declined steadily even during the housing boom when consumers cashed in on cash-out refinancing, home equity borrowing and 100 percent financing.

Now, home values are falling, taking a bigger slice out of the home equity pie.

The decline in values has left many home owners with negative equity or what's called an "upside down" mortgage where the mortgage is larger than the home's value.

At the end of March, some 8.5 million home owners, 16 percent of those with a mortgage, had negative or no equity in their homes, according to Moody's Economy.com.

In some hard hit areas like California, Florida, Michigan and Nevada, more than half the home owners who purchased homes in 2006 live with upside down mortgages, according to Zillow.com.

Other than quickly paying down the mortgage or otherwise shelling out cash for equity-saving home improvements, there's little many home owners can do to hold onto or increase their equity.

Experts expect equity nationwide to decline further as falling home prices erode home prices, plunging more home owners into upside down mortgages.

Economy.com is forecasting home prices to decline by as much as 24 percent from the peak of the market. By June 2009 Economy.com estimates the number of home owners with zero or negative equity will increase to 12.2 million, or about 25 percent of all home owners with a mortgage.

Home owners with zero or negative equity are those most likely to default on mortgage payments and walk away from their mortgages. The trend will exacerbate the housing down turn by leaving the market with more foreclosures.

The good news is that one out of every three home owners have no mortgage at all and own their home free and clear with a 100 percent equity stake.

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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