Home equity slips below 50% for first time since 1945.

[phk]

Home equity slips below 50%

Federal Reserve says homeowners' debt on their houses exceeds their equity for the first time since 1945.

NEW YORK (AP) -- Americans' percentage of equity in their homes has fallen below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday.

Homeowners' percentage of equity slipped to a revised lower 49.6% 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% in the fourth quarter - the third straight quarter it was under 50%. 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% 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% 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%, will be "upside down" if prices fall 20% from their peak.

The latest Standard & Poor's/Case-Shiller index showed U.S. home prices plunging 8.9% in the final quarter of 2007 compared with a year ago, the steepest decline in the 20-year history of the index. To top of page

[MODU]

When you mix overly-inflated housing prices with high-risk loans, and dash in a little market correction for a bit of a kick, this is exactly the kind of mess you end up with.  We need to get those ARMs refinanced with a fixed rate lone and bring some stability back to the market. 

[Small Business Owner of Any Repute]

When you mix overly-inflated housing prices with high-risk loans, and dash in a little market correction for a bit of a kick, this is exactly the kind of mess you end up with.  We need to get those ARMs refinanced with a fixed rate lone and bring some stability back to the market. 

Lower home equity is not necessarily a bad thing—especially if it means more first-time home buyers are getting involved in the market.  The actual "danger signs" to be looking for are, say, the people at "less than 10%" equity, or worse yet, people without any equity left at all.  If you've got 50% equity in your home, you're doing real good.  If you've got 0% equity, you're trapped in a world of pain.

Interest rates are low enough again to make moving from ARM to fixed a no brainer, though ironically, the lower interest rates mean exceptionally low ARM rates, cutting a lot of the pressure to make the switch.

Besides, banks don't want to be refinancing these loans.  It's like offering to take someone else's timebomb off their hands.

[MODU]

Besides, banks don't want to be refinancing these loans.  It's like offering to take someone else's timebomb off their hands.

I agree with you on the first-time buyer part.  That is how wealth is made (buy low, sell high).  However, for the refinancing, I think it would be better for the financial institutions to refinance into something which is more predictable and stable.  As we have seen, many of them had to write off a lot with the adjustable rate and interest only timebombs exploding on them.  I would be more inclined to see my customers have a steady monthly payment which I know that they can make rather than hoping that I see any payments at all the next month.

[opebo]

When you mix overly-inflated housing prices with high-risk loans, and dash in a little market correction for a bit of a kick, this is exactly the kind of mess you end up with.  We need to get those ARMs refinanced with a fixed rate lone and bring some stability back to the market. 

Actually all those are just symptoms - the cause is bad economic policy.  Right-wing economists attempt to prop up capitalism with just interest rate intervention - it doesn't work.  Income redistribution is what is missing.

[Ban my account ffs!]

I blame many of our financial problems on Alan Greenspan.  The man was inept and couldn't call a bubble if it came up and bit him in the ass.  We're just dealing now with his awful economic policy.

Sorry, but when you slash interest rates the way Greenspan did, you're going to have an economy in which everybody with a few dollars to burn is going to throw it at any business that moves and in the end you're going to have a large redistribution of income from naive middle class speculators to the already rich, smarter investors that can call a bubble when they see one.

No wonder they supported Greenspan's policies so wholeheartedly.

[dead0man]

When you mix overly-inflated housing prices with high-risk loans, and dash in a little market correction for a bit of a kick, this is exactly the kind of mess you end up with.  We need to get those ARMs refinanced with a fixed rate lone and bring some stability back to the market. 

Actually all those are just symptoms - the cause is bad economic policy.  Right-wing economists attempt to prop up capitalism with just interest rate intervention - it doesn't work.  Income redistribution is what is missing.

Because historically it's worked so well!

[Ban my account ffs!]

When you mix overly-inflated housing prices with high-risk loans, and dash in a little market correction for a bit of a kick, this is exactly the kind of mess you end up with.  We need to get those ARMs refinanced with a fixed rate lone and bring some stability back to the market. 

Actually all those are just symptoms - the cause is bad economic policy.  Right-wing economists attempt to prop up capitalism with just interest rate intervention - it doesn't work.  Income redistribution is what is missing.

Because historically it's worked so well!

Redistribution worked really well from 1933-1970s.  Since the 1980s, the rich have taken off while everybody else has been left spinning.