Homeowner Equity at Post WWII Low

In light of Thursday's Flow of Funds report from the Fed, which showed a substantial decline in U.S. household wealth in the most recent quarter, we thought the data presented below (courtesy Investment News) were as timely as ever. Note that for the first time in the post-war period, Americans own less than half of the estimated value of their residential real estate.

 

This chart is the inevitable product of declining prices and massive equity withdrawals. Which makes us think of Maxed Out, a documentary on Americans' ever-expanding indebtedness and some of the less savory business practices that have helped us along on that path. We recommend it--though maybe not on a full stomach.

Comments

[Idahoregona...:]

Why hasn't this been posted every month/year? This is one of several things wrong with America and similar countries...My dad and mom paid off their home at the ages of 40 and 33 and dad was able to retire at 60.
Thanks Mom & Dad.

2008 Jun 05 06:01 PM

[Global Warm...:]

I am not surprised that home equity is lower with falling home prices. But that may not be the only reason. With interest rates below the inflation rate, the prospect of the dollar continuing to fall, and investments available in hard assets and/or foreign currencies; wouldn't it make sense to borrow against your home at a fixed rate with the plan on paying it off later with 'cheaper' dollars even if you could pay off the loan balance now.

2008 Jun 05 07:04 PM

[Xyrus:]

That would make sense analyst, but that isn't what Americans have done. Instead, they went on a massive spending binge from all the available cheap credit under the auspices that their homes would keep going up. It was at best, naive.

Houses, compared to wages, have been high priced for a while. Maybe this corrction will level that out a bit.

~X~

2008 Jun 05 09:12 PM

[joof:]

If you dig into the numbers ( at least the prior issuances of this data) you find that the % of owners with fully paid off mortgage or good LTV ratios hasn't changed that much. However the portion of people with high LTV (little to no equity; the new buyers of the past several years ) are much more levered. Hence, combined with value reducitons the average equity decline

we end up with two classes- the housed and comfortable, and the broke

2008 Jun 06 05:22 PM