Originally published Friday, March 14, 2008 at 12:00 AM
Analysis
Home equity losing grip
In 2007, home equity, the value of a home less mortgage and related debt, dipped below 50 percent for the first time since the Federal Reserve...
The Associated Press
In 2007, home equity, the value of a home less mortgage and related debt, dipped below 50 percent for the first time since the Federal Reserve began keeping records.
With home prices weakening and foreclosures at an all-time high, there's little sign this key source of household wealth will recover.
When home values were rising, people could tap the equity for cash. Now, there's less to tap just as credit is tighter and job losses higher.
While the equity has been declining since the mid-1980s, as more people borrowed against their homes, the fourth-quarter fall is mostly due to lower prices. "This is a forced reality check," says Bankrate.com senior financial analyst Greg McBride. "Home prices don't go straight up."
The price decline contributed to the highest foreclosure rate in history in the fourth quarter, according to the Mortgage Bankers Association.
The Standard & Poor's/Case-Shiller index shows home prices lost 8.9 percent in the period. Experts say further declines are likely.
"The combination of a huge slide in property prices and more mortgage debt took homeowner equity down a record $287 billion in the fourth quarter," notes Merrill Lynch analyst David Rosenberg. The value of homes, Americans' largest asset at about 39 percent of household net worth, was $20.2 trillion at the end of 2007, even after the decline.
Copyright © 2008 The Seattle Times Company
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