Home-value numbers are still upbeat on equity

Kenneth R. Harney

10/31/2014

WASHINGTON — It’s official: The equity boom, which has added an estimated $1.6 trillion to

the personal net wealth of American homeowners in the past year, has slowed dramatically.

It’s not over by any means. It has just lost some of its previous pep.

In the latest quarterly data from the Federal Reserve, which tracks residential real estate, home

equity holdings across the country rose by $177 billion. That sounds massive but it’s actually

down significantly from the previous quarter, when equity soared by $452 billion — nudging

half a trillion.

So what’s going on and how does this affect you?

First, some basics. Your equity is the difference between the current resale value of your home

and the mortgage debt you’ve got on it. If your house would sell this weekend for $300,000

and your mortgage balance is $150,000, you’ve got $150,000 in equity, not counting

transaction costs. This is wealth stored away in your own private real estate savings account.

You can sit on it, borrow against it to finance home improvements or college tuitions, and you

can factor it into your retirement plans. According to the Federal Reserve, home equity

holdings in the latest quarter hit $10.84 trillion. That’s up from $6.4 trillion as recently as

2011. These are big, brain-numbing numbers no doubt, but equity is a crucially important

subject for millions of people who are counting on it.

The rapid growth in equity has been powered primarily by post-recession gains in homeselling

prices and by pay-downs of mortgage principal debts owed to banks. Total homeowner

mortgage debt outstanding has continued to fall steadily, and is now well below what it was in

2009. Roughly one of three homes is mortgage-free, owned outright, according to industry

estimates. Another approximately 11 million owners have equity stakes of at least 50 percent,

reports housing data firm RealtyTrac in a study released last week.

The flip side of the upbeat equity picture is negative equity — underwater homes where debt

exceeds resale value. Fifteen percent of all houses with mortgages are still in serious negative

equity territory. The RealtyTrac study defines “serious” as owing at least 25 percent more on

the mortgage than the resale value of the home — an outstanding unpaid balance of $375,000

or more on a $300,000 property, $500,000 or more on a $400,000 house.

Despite the increases in prices that many parts of the country have experienced since the

recovery began in 2012, an estimated 8.1 million houses remain seriously underwater, making

them difficult to resell or refinance.

Much of the negative equity pain is concentrated in a handful of states where home values

went into free fall during the housing bust years or where local economic growth has lagged

the national recovery and unemployment remains high. In Nevada, nearly one of every three

(31 percent) homes remains in negative territory; in Florida, it’s 28 percent; Illinois, 26 percent;

Michigan, 25 percent; Rhode Island, 22 percent; and Ohio, 20 percent. One surprise on the

seriously negative equity list: Maryland, which contains some of the wealthiest counties in the

country, has an 18 percent seriously negative rate. Virginia comes in at just 8 percent and the

District of Columbia at 10 percent.

Arizona, which experienced among the steepest drops in prices during the recession, has

rebounded with vigor and now has a serious negative equity rate of 18 percent, just slightly

above the national average of 15 percent. California, where post-bust home price appreciation

has far outpaced all other states in recent years, now has a below-average serious negative

rate: 12 percent.

Where do the folks with high equity stakes live — those with 50 percent plus? Not surprisingly

they tend to have owned their homes for well over a decade and live in higher cost houses

($500,000 and up) in above-average priced markets. Hawaii has more equity-rich residents

than any other state — 35 percent. New York and Vermont come in next at 33 percent,

followed by California (30 percent) and the District of Columbia (27 percent).

Bottom line on the latest equity numbers: They’re basically good news. Fewer people are

underwater — back in the dark days of the bust more than half of owners in some of the worsthit

markets were underwater. Plus the slowdown in prices nationwide is healthy. More modest

growth in list prices means more potential purchasers can afford your house when it’s time to

sell.