Equity, What Equity?

The equity levels have plunged once again to the lowest levels since World War II. This article from MSNBC called Equity in American's Home Falls to Historic Lows discusses how the dropping home values are reducing people equity and their net worth.

The equity Americans have in their most important asset — their homes — has dropped to its lowest level since the end of World War II.

Homeowners’ portion of equity slipped to 46.2 percent in the first quarter from a revised 47.5 percent in the previous quarter. That was the fifth quarter in a row below the 50 percent mark, the Federal Reserve said Thursday.

The total dollar value of equity also fell for the fourth straight quarter to $9.12 trillion from $9.52 trillion in the fourth quarter, while Americans’ total mortgage debt rose to $10.6 trillion from $10.53 trillion.

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At the end of March, nearly 8.5 million homeowners had negative or no equity in their homes, representing more than 16 percent of all homeowners with a mortgage, according to Moody’s Economy.com Chief Economist Mark Zandi. By June 2009, he estimates that will increase to 12.2 million, or almost one out of every four homeowners with a mortgage.

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Zandi expects prices to fall 24 percent from peak to trough. Last week, Standard & Poor’s/Case-Shiller said its national home price index fell about 14 percent in the first quarter compared with a year earlier, the lowest since its inception in 1988.

The article also discusses how one third of all homeowners own their homes free and clear with no mortgage. This seems hard to believe during the Great Housing Bubble so many people were using their HELOC. And so many seniors who would have paid off their equity are starting to use Reverse Mortgages. I have heard this figue thrown around but would like to see the data can be validated somewhere. If it is government number is it as valid as the Birth-Death job model. Just because a model works does not mean the data it produces is valid.