Got Equity?

(CBS/AP)  As homeowners struggling to meet mortgage payments listened to President Bush's plan to help some stave off foreclosure and remain in their houses, the Federal Reserve came out with a report containing a new riveting statistic.

The nation's central bank says the amount of equity that U.S. homeowners hold in their homes slipped in the third quarter to the lowest level on record, just above 50 percent.

In its quarterly U.S. Flow of Funds Accounts, the central bank reported that homeowners' percentage of equity dipped to 50.4 percent from 51.1 percent from the previous quarter. On average, housing is Americans' single largest asset.

Economists expect this figure, equal to the percentage of a home's market value minus mortgage-related debt, to tumble even further as falling home prices eat into equity. It could easily drop below 50 percent by the end of next year, some experts say, marking the first time homeowners will owe more than they own since the Fed started recording the data in 1945.

Home equity has steadily decreased even as home prices jumped earlier this decade due to a surge in cash-out refinances, home equity loans and lines of credit and an increase in 100 percent or more home financing - practices which can in turn push borrowers closer to the risk of foreclosure.

Home foreclosures shot up to an all-time high in the third quarter, weighing in at 0.78 percent, while the delinquency rate for all mortgages climbed to 5.59 percent - the highest rate in 21 years.

The degree to which Americans own their homes is considered to be a matter of concern because a decline in equity could slow retail spending as homeowners stop tapping into their home equity to fund purchases and bills.

Consumer confidence is near a two-year low, attributed to housing problems, a credit crunch, high energy prices and turbulence on Wall Street.

The RBC Cash Index, released Thursday, shows consumer confidence clocking in at 65.9 in early December. That hovered close to a reading of 64 in November, which marked the worst showing since the devastation wrought by the Gulf Coast hurricanes in 2005.

"There's a great deal of angst out there," said economist Ken Mayland, president of ClearView Economics. "There is a great deal of fear and foreboding."

Over the past year, consumers' confidence has deteriorated sharply, reflecting the toll of the problems facing the economy. Last December, confidence stood at a solid 86.9. The index is based on the results of the international polling firm Ipsos.

Overall consumer sentiment remains at very low levels, said T.J. Marta, fixed income strategist at RBC Capital Markets. "Gasoline and oil prices are starting to slip but remain elevated. The stock market continues to struggle to make new highs. The housing situation remains dire."

The Federal Reserve is watching closely the way that consumers - a major force shaping overall economic activity - behave in terms of their spending and investing. The big worry among economists is that they will cut back sharply, throwing the economy into a recession.

Analysts say the odds of this happening have grown but economists, Fed officials and the Bush administration are still hopeful that such a situation can be avoided.

To stave off a possible recession, the Fed has sliced a key interest rate two times so far this year. A third rate reduction is expected when policymakers meet next week.

[logicanada]

Ever heard the song , ''I owe my soul to the company store"?
That''s where we''re all headed.
In 1960 my father fed, clothed and entertained a family of 6 on 43 dollars a week.
My mother didn''t work and there was no such thing as credit cards. There were mortgages available if you needed them however a house cost only 15,000 and any mortgage would be small.We had no loans and if we wanted something we saved for it. We received one Christmas present...one nice one.
We were not wealthy but we were happy enough.
Oh....and there was no stress.
Now a mere 40 yrs later most middle and lower class folks are so far in debt that they are sinking. Both parents work in most cases, there is little quality family time, real vacations are few and far between and retirement is out of the question for many.
Work till you die under the harness of credit.
We are reverting back to slavery under this credit/debt finance system and soon will come a day when people are just going to refuse to pay off loans.
That is when we start anew and the country collapses.

[random_radar]

"Otherwise, theres always selling body parts.

Posted by ov442 at 11:26 AM : Dec 07, 2007"

Unfortunately, selling body parts is illegal. You can donate body parts for free, but you cannot get paid for it. I don''t know why and I wish it weren''t the case. I would be glad to sell a kidney to finance my kids''s college education. For that matter, my wife would be glad to part me out and use the proceeds to retire with a new husband.

[davidlar2]

It is factually incorrect that the poor pay most of the taxes in the US. In fact, the rich in the US pay a larger percentage of the total tax take than they do in socialist Scandinavia, making the US tax system one of the more "progressive" in the developed world. Incidently, many economists would regard the US tax system as one of the most inefficient in the developed world, but that is another issue.

[eggy1620]

Any opinions on what we can use to stay afloat next? Posted by ianlou

Yeah. Nursing homes and assisted living facilities will be emptied of their residents as we bring our elderly parents home to collect their SS and retirement benefits. When those sources run dry, we%u2019ll become foster parents so we can collect county benefits.

[whatsnext987]

MCVet, Your amount of equidity may have increased, but what was it as a precentage of your home value? The article talks about percentages. Anytime you take your equidity out of a house with a lower value and use it to buy a house with a higher value, your percentage of equity will drop (unless you add a stash of cash).

[ov442]

Corrected version...
I recently heard an opinion that offered the following:
Since the days of June Cleaver, Most Americans have been able to cling to a middle class status by:
1: Becoming a duel income family sacrificing the stay at home mom. (1970s and 1980s)
2: Working longer hours with fewer vacations (1990s)
3: Using credit cards and home equity for everyday living expenses (2000s).
Any opinions on what we can use to stay afloat next?
--Posted by ianlou

Well, heres youre choices:
1) Work for Halliburton and cheat people
2) Work for Blackwater and kill people
3) Work for Fox and lie all day long
4) Work for Bush and throw away your integrity
5) Move to another country and start new.
Otherwise, theres always selling body parts.

[oscarez]

"delinquency rate for all mortgages climbed to 5.59 percent - the highest rate in 21 years" Who was the president in 1986? Oh, Ronald Reagan the great Republican president and friend of the rich. The Republican motto: "Party before country, Always! America where The rich Republicans get richer and the poor Democrats pays all the taxes".

[ianlou]

Corrected version...
I recently heard an opinion that offered the following:
Since the days of June Cleaver, Most Americans have been able to cling to a middle class status by:
1: Becoming a duel income family sacrificing the stay at home mom. (1970s and 1980s)
2: Working longer hours with fewer vacations (1990s)
3: Using credit cards and home equity for everyday living expenses (2000s).

Any opinions on what we can use to stay afloat next?

[ianlou]

I recently heard an opinion that offered the following:
Since the days of June Cleaver, Most Americans have been able to cling to a middle class status by:
1: Becomming a duel income family sacrificing the stay at home mom. (1970s and 1980s)
2: Working longer hours with fewer vacations (1990''s)
3: Using credit cards and home equity for everyday living exenses.

Any opinions on what we can use to stay afloat next?

[rational_1]

This should be no surprise since it is increasingly common for homeowners to move 3, 4, even 5 times during their life. Each time trading up in their home.
Posted by eggy1620 at 07:40 AM : Dec 07, 2007

HUH? LOL Now this is about as LAME an excuse as I''''ve ever heard. I and my wife have moved up every 4 or 5 years and in EVERY case the amount of equidity we had has INCREASED. Now you wouldn''''t be one of the Kool Aid Drinkers would you? Sieg Heil Bush!!
Posted by MCVet at 08:46 AM : Dec 07, 2007

I don''t find eggy''s (sorry, couldn''t resist) analysis at all lame. Yes it may not apply to you, but just because you''re able to increase your equity with each move doesn''t mean everyone else is doing the same. What quality of evidence do you think you''re providing with your n=1 anecdote? I think many people have gotten in over their heads by over-committing themselves financially to housing they really can''t afford. No need to go postal on poor eggy, especially since he/she/ovum is probably right.