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Our Shrinking Home Equity

Posted by: Chris Palmeri on June 4, 2008

My hat is off to the folks at the financial industry trade publication Investment News for creating this fascinating and frightening table showing how America’s home equity has withered over the decades.

The big news here is that for the first time in at least 63 years, the amount of equity we have in our homes has fallen below 50%. In 1945, for example, Americans held residential real estate worth $116 billion and had borrowed $18 billion against that. That’s 84% equity or a loan-to-value, as mortgage folks call it, of just 15%. Last year the percentage of equity stood at 48%.

What’s particularly startling about that number is that even though the total value of America’s homes doubled since 1998 to more than $20 trillion dollars, the total mortgage debt grew even faster. It now stands at $10.5 trillion.

Although the percentage of equity has been declining for decades it hasn’t done so continually. From 1960 to 1985 it held relatively steady at 69%. The source for this data is the Federal Reserve.

Reader Comments

el cid

June 6, 2008 11:43 AM

Well Duh!! Who didn't see this coming with deregulation of the banking industry and all the new ways people feel they need to spend their money? I am surprised it's not worse actually.

When will government realize its duty to protect people from themselves is actually necessary. I know Maharushie likes to tell us that we have personal responsibility but that little trait is not being passed down by the older generation.


June 7, 2008 9:22 PM

I do not fel sorry for any one that is having there home repoed. My home as all ways been a saving and I have paid off all the homes I have owned. My home is paid for and we live well. I,m 68 and my wife is 60 and disabled.


June 10, 2008 5:19 AM

The California big real estate scam did not start over night, or in this recent decade. In the early 1900s, the people who bought the Los Angeles/Orange/ Riverside County semi-arid deserts for $.25/acres hired Madison Avenue PR to market desert land to the naive easterners in NY, NJ, and etc. Soon afterwards, perfect postcard pictures of fruit trees, manicured lawns, imported tropical palm trees and idyllic lifestyle were published in national architectural and home magazines taunting the "good" life in California. To show the folks back east how wonderful, colorful, and lush California real estate is, the Rose Bowl parade was concocted to show the nation the kaleidoscope of flowers and verdant that flourished in this semi-desert. Nobody exposure the facts that a supermajority of the flowers were imported from outside California because the southern California inferno could not support these tropical flowers so prominently displayed on the New Year Day's floats. Coincidentally, somebody forgot to mention that the fruits were stapled on non-fruit bearing trees. Even today, LA's wholesalers imports flowers from S. America. Southern California became much greener after Mr. Mulhulland stole water from Northern California's Owen's valley, and later 3 aqua ducts tapped into Sacramento Delta, Colorado River and Sierra Nevada watersheds. With almost unlimited supply of water
,Southern California was farmed on cheap land. During and after WW2 land owners had the golden opportunity to entice GIs to start their family in the newly developed subdivsions. With money to be made hand-over-fist, people in the real estate business were not about to expose the game plan. It was a giant pyramid scam perpetuated by the Madison Ave propaganda that nobody can lose money buying real estate. In was also well know that an incredible number of people lost money in their 30 year mortgage because they could not calculate the worth of their home in constant dollars. Like all pyramid scam, there is always an end. In 2006, the real estate scam unraveled. The old scamer left the table or died leaving the Johnny-come-lately holding up the banks that underwrite the ARMs. Like the Tulip bust or the dot-com bust or other bust in US history, the real estate bust of the 2006 exhibited the same "irrational exuberance" that ultimately turned into nightmares. Today, many real estate speculators cling to faded hope that have deteriorated into despair, denial and blame. Others with less moral conscience are trying desperately to unload their albatross on the naive through unscrupluous means.
There are always the die-hard speculators who believe buying a home is an excellant "investment." With so many people associated with real estate business and so much money on the line, the myth of real estate as an "investment" must be kept alive even if it means burying the human toll and capital in the desert sand.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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