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Economist: Lowest Home Equity In Over Half-Century Could Kill Retirement Plans

LOS ANGELES (CBS/AP) — The percentage of their homes that Americans own is near its lowest point since World War II, according to a report from the U.S. central bank.

The average homeowner now has 38 percent equity, down from 61 percent a decade ago, the Federal Reserve said Thursday.

The latest bleak snapshot of the housing market came as mortgage rates hit a new a low for the year, falling below 4.5 percent for a 30-year fixed loan. Not even attractive rates have given any lift to the depressed housing industry.

Normally, home equity rises as a mortgage is paid off. But home values have fallen dramatically since the bubble in prices burst in 2006. So many homeowners are losing equity even though the outstanding balance on the loan is getting smaller.

UCLA economist Edward Leamer warns the loss of home equity could leave struggling homeowners in an even tighter financial squeeze in their golden years.


"Americans used to have priorities when they paid off their mortgages in full, and then they could use their homes to fund retirement, to sell the home, or move into a retirement home," said Leamer. "Now we don't have that, and there's nothing to replace it, so it's really, really a problem."

The Fed report is based on data from the first quarter of this year. Another report last week found that home prices in big cities fell to 2002 levels.

(TM and © Copyright 2011 CBS Local Media, a division of CBS Radio Inc. and its relevant subsidiaries. CBS RADIO and EYE Logo TM and Copyright 2011 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)

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