Home Equity lowest percentage since 1945 in the USA
Posted by Mike Sylvester - 3/6/08 @ 9:07 pm - Filed Under 2008 National Elections
Please read this story:
http://apnews.myway.com/article/20080306/D8V82V580.html
The Federal Reserve started tracking home equity in 1945. It has just hit the lowest percentage on record at under 50%. Per the story:
4th quarter 2007 home equity is approximated at 47.9%.
Economists expect the figures to drop further.
Moody’s Economy.com estimates that 10.3 percent of homeowners will have zero or negative equity at the end of this month.
These are important statistics that should dominate the current political debate. Per the story 10.3% of homeowners would have to bring money to the closing of their house even if they did not have to pay Realtor’s fees, settlement fees, etc. Realize that the average homeowner will have to pay about 7% in Realtor fees and other fees to close the sale of their house. This means the average home owner needs to have about 7% more equity in their home then they owe on the mortgages secured by the home in order to break even.
There are several reasons why home equity has dropped to such a low figure:
1. Our politicians (Both Democrats and Republicans) keep touting home ownership and have encouraged people to buy larger and larger homes whether they can afford them or not.
2. Lending institutions used to require a 20% down-payment; they now often require no money down and have gone out of their way to encourage people to undertake loans they have no way of affording.
3. Home prices have dropped in the last few months.
4. We live in a society where everyone wants to purchase their dream house and purchase everything they want as soon as possible; people do not seem to give thought to how they will pay for their purchases.
5. It is now common for people to take out 2, 3, 4, or even 5 mortgages against their house.
In the last few days I have modified my predictions about a recession. I used to be convinced that a massive recession was coming; however, I was not sure if it would hit us in a few months or in a few years. I now feel that it will hit us within the next five years. I feel this recession will be nearly as large as the “Great Depression.”
There are several factors that have caused me to feel the recession will hit us quicker:
1. The home equity numbers are frightening.
2. The Federal Government is broke and neither Party is willing to cut spending.
3. The dollar is weakening further against foreign currencies.
4. High paying jobs continue to move overseas and our politicians (Republican and Democrat) have yet to propose a single policy to help curb this.
5. The Baby Boomers are retiring soon and this will signal the “death knell” of Social Security and Medicare.
6. Neither Republicans nor Democrats are willing to address any of these issues; in fact, they do not even seem to be able to understand them. This is especially disturbing in a Presidential election year.
7. Home foreclosures and bankruptcies are going to rise and more and more people are going to default on their debts. This will cause corporate cash flows to worsen and corporate profits to fall.
Mark my words, it is going to get ugly.
Mike Sylvester
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4 Responses to “Home Equity lowest percentage since 1945 in the USA”
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Do you see this spilling over into other markets? It will be interesting to see what happens with consumer unsecured debt.
Mike,
What do you think about the current property tax bill - HB1001 - that caps property taxes at 1%? In my opinion this is yet another policy that encourages people to spend more than they can really afford.
I’m not against tax caps in general but I know full well this is going to be followed by an increase in the income tax. That means, once again, we’re going to punish people that live within their means and bail out the masses that are accruing debt at record rates…
There are some things I like and some I dislike about HB1001…
Overall this will just shift taxing from one group to anther and it will not help address the real problem which is ecessive Government spending.
Mike Sylvester
[...] have continually been taking the equity out of their house. Please go back and read my post from March 3rd about this topic. Pay particular attention to my statement where I predicted: “In the [...]