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 home-selling 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.
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