Equity in Americans’ homes
falls to historic low
Drops to 46.2 percent in first quarter — level not
seen since end of WWII
The equity Americans have in their most important
asset — their homes — has dropped to its lowest
level since the end of World War II.
Homeowners’ portion of equity
slipped to 46.2 percent in the first quarter from a revised
47.5 percent in the previous quarter. That was the fifth
quarter in a row below the 50 percent mark, the Federal Reserve
said.
The total dollar value of equity also fell for the fourth
straight quarter to $9.12 trillion from $9.52 trillion in
the fourth quarter, while Americans’ total mortgage
debt rose to $10.6 trillion from $10.53 trillion.
A homeowner’s equity is the market value of a property
minus the mortgage debt. And homeowners’ percentage
of equity has declined steadily even as home values surged
during the housing boom due to a jump in cash-out refinancing,
home equity loans and an increase in 100 percent financing.
Experts expect equity to decline further as falling home
prices erode the value of Americans’ largest asset,
dragging more homeowners “upside down” on their
mortgages.
At the end of March, nearly 8.5 million homeowners had negative
or no equity in their homes, representing more than 16 percent
of all homeowners with a mortgage, according to Moody’s
Economy.com Chief Economist Mark Zandi. By June 2009, he
estimates that will increase to 12.2 million, or almost one
out of every four homeowners with a mortgage.
But to put that number in perspective,
one out of every three homeowners own their properties free
and clear, with no mortgage at all.
Still, Zandi said, “For most, their home is their key
asset. If they have no equity in their home, likely their
net worth is negative too. Their entire balance sheet will
be underwater.”
The report also showed that Americans’ total net worth
dropped to $55.97 trillion in the first quarter from $57.67
trillion.
Zandi expects prices to fall 24 percent from peak to trough.
Last week, Standard & Poor’s/Case-Shiller said
its national home price index fell about 14 percent in the
first quarter compared with a year earlier, the lowest since
its inception in 1988.
Prices nationwide are at levels not seen since the third
quarter of 2004.
Homeowners with no or negative equity are more likely to
fall behind on their mortgage payments or, in frustration,
mail the keys to the lender and walk away from their mortgages,
a phenomenon more lenders are seeing. This will only increase
foreclosures, which have been surging the last two years,
and further exacerbate the housing downturn.
The Mortgage Bankers Association said
Thursday the rate of new foreclosures and late payments in
the first three months of this year were the highest on record
going back to 1979. Almost 1 percent of mortgages fell into
foreclosure, surpassing the previous high of 0.83 percent
in the last quarter of 2007. The percentage of Americans
who have missed at least one mortgage payment jumped to 6.35
percent, up from 5.82 percent in the prior quarter.
Jay Brinkmann, the association’s vice president of
research and economics, told The Associated Press he anticipates
foreclosures and late payments to continue increasing in
the months ahead as prices keep dropping as expected. |
