No surprise from this AP story, considering the legions of Americans who utilized cash out refinancing during the 'good times', and the army of those underwater in the current era. What is staggering is the magnitude drop in the past decade - 61% to 38%. I've outlined the long term national concern in posts as long back as 2008. Whereas many seniors today have their home paid off and hence can live on a lower income as their main monthly expense is paid for (sans property taxes and maintenance), many of the baby boomer generation will be saddled with a housing or rental expense in their golden years. This is just going to put another squeeze on consumer spending and cause hardship for many who lived for today.
- Falling real estate prices are eating away at home equity. The percentage of their homes that Americans own is near its lowest point since World War II, the Federal Reserve said Thursday. The average homeowner now has 38 percent equity, down from 61 percent a decade ago.
- Home equity is important for the economy because it has a lot to do with how wealthy people feel. If they feel swamped by a mortgage loan, they're less likely to spend freely on other things. Home equity also serves as collateral for some loans.
- There are 74.5 million homeowners in the United States. An estimated 60 percent have a mortgage. Of the people who have mortgages, 23 percent are under water, meaning they owe more on the mortgage than their home is worth, according to the private real estate research firm CoreLogic. An additional 5 percent are nearing that point. (by 2013, one could expect 33% or more will be underwater - of course that number will be mitigated by those foreclosed on or who 'walk away'.)
- The Federal Reserve report found that Americans' overall net worth grew 1.65 percent in the January-to-March period, to $58.06 trillion, mostly because of stock market gains. Most of those gains have been erased since March, though.
Now for what appears to be good news, but as we have outlined in previous posts is simply a reflection of defaults. [Jun 15, 2010: WSJ - Default, not Thrift Pares U.S. Debt]
- The report found household debt declined at an annual rate of 2 percent from the previous quarter, mostly because of a decline in mortgage debt, which has fallen for 12 straight quarters. (sounds good, people are shaping up!) But the decline is deceiving. Mortgage debt is coming down because so many Americans are defaulting on payments and losing their homes to foreclosure, not just because people are paying off loans. (oops, had to look under the hood) A lot of this debt reduction is not voluntary, said Dana Saporta, director of U.S. economics at Credit Suisse.
- The Fed report suggests the average household owes about $119,000 on mortgages, credit cards, auto loans and other debt. Debt now equals 119 percent of the money Americans have left over after taxes. In late 2007, when the country was binging on debt, it was 135 percent. In the healthier 1990s, it was roughly 90 percent.
- Auto loans, student loans and other consumer credit rose 2.4 percent during the quarter, a second straight gain. Analysts say more people, many of them unemployed, are borrowing money to attend school.