Homeowners Still Losing Equity on Their Homes Across the Nation

By Kyle Chezum Updated on 6/10/2011

 

Ten years ago, the average homeowner had 61% equity in his or her home.  The remainder was on bank balance sheets.  That's impressive, when you consider it.  Assuming a bell curve distribution, this means that a large number of Americans owned their homes outright and that many others had enough capital stored away in their homes to significantly benefit their financial situations.  Those who had mortgages were gradually working to pay them down and were building up meaningful equity in the process.

Today, the average homeowner has just 38% equity in his or her home.  This isn't just a drop.  It's a dramatic drop that speaks to the massive decline in home values and the surge of new, recent mortgage holders into the market during the final years of the housing bubble.  These borrowers, who never got the opportunity to build up significant equity before hard times hit, are often underwater along with many other homeowners.

Home prices in many large metropolitan areas have fluctuated upward and downward during the crisis, though with the exception of one or two areas, they have mostly trended downward.  Home prices in most of these areas have now returned to 2002 levels.  What does this say about the equity of the homes in these cities?  It says that anyone who bought during the peak bubble years likely has little to no equity at all in his or her home.  All the equity appreciation of the last 9 years has been undone.

Mortgage rates have reached extreme lows again of less than 4.5% for a 30 year fixed rate loan, Freddie Mac reports, but this hasn't yet stirred the housing sector into action.  With summer on the way, though, there could be a beneficial change in the real estate forecast.