Fed Report Shows Americans Have Less Home Equity Than Ever Before
June 18th, 2008Via: HomeGude123:
Home equity is defined as the market value of a property minus the amount owed on mortgage debts.
Since homes are the biggest asset that most people have, equity is pretty important. Unfortunately for the American people, home equity is a dwindling resource.
A Federal Reserve report released Thursday shows the amount of equity held by U.S. homeowners slid to 46.2 percent in the first quarter of 2008–the lowest percent on record.
Equity has been on the decline since the housing boom. Although home prices were rising at the time, there were a lot of homeowners who took advantage of lines of credit and cash-out loans.
Mortgage debt rose to historic proportions during this period and is still rising despite the presence of a full-blown credit crunch. During the first quarter of 2008, Americans’ mortgage debt increased from $10.53 trillion to $10.6 trillion.
Underwater Mortgage
Rising debt and vanishing equity has contributed to an underwater mortgage phenomenon.
An estimated 16 percent of people with mortgages have little to no home equity left, according to Moody’s Economy.com. By 2009, one in four mortgage holders will owe more on their home than it is worth.
And of course this nicely couples with American households having less savings than ever and more credit-card debt than ever.