how many home-owners have no equity?

[sniglet]

Does anyone know if there is any data showing the historic trends for the percent of home-owners with little or no equity?

Calculated Risk had a post back in early December showing negative equity trends since 2006, but this doesn't give much to go on when trying to get perspective with past down-turns (e.g. 80-83, 90-94). If it turns out that there is a higher percentage of home-owners with significant equity than during past rough spots, then maybe things won't get significantly worse this time round.



To be clear, what we need to find is information about the percentage of home-owners with very little (or no) equity: not information about over-all equity levels (although that could be interesting in it's own right).

[rose-colored-coolaid]

Well, total equity is now below 50%, which it has never done before. I know this is exactly what you didn't want to hear, but it's all I got. It does suggest that fewer people have equity than at any point in the past though.

[TJ_98370]

.
Here is a partial answer for you sniglet.



....Moody's Economy.com estimates that 8.8 million homeowners, or about 10.3 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9 percent, will be "upside down" if prices fall 20 percent from their peak.....

[sniglet]

[biliruben]

It's not really possible to track it in a rigorous way, because you can't know how much equity you have until you sell, and the agents finish feasting on the remaining equity.

I will tell you that Seattle has seen significant declines. Anyone who bought with less than 10% down last summer has negative equity. Taking into account transaction costs if they sold today, 15% down last summer wouldn't keep them from writing another check at closing. Seattle is falling, and it's falling fast.

[FreedomLover]

I have about 22% equity after 2+ years in my condo. Now, this by itself is meaningless if my condo loses market value below what I originally got the loan for. However, it's probably good for my AAA++++ credit rating.

[jjl]

Of the homes "on the market" in Bothell 8% have no or negative equity.

Anyone who bought in the last 18 months has no appreciation equity. If they have equity it was through down payment.

[rose-colored-coolaid]

[redmondjp]

One thing that hasn't been mentioned explicitly yet are those long-time homeowners that have been using their house's rising equity as an ATM over the past several years. I know two people who have personally done this--one had to finally sell after having owned the house for over 10 years (no job, and didn't want to work, and equity was tapped out), and the other (my neighbor) owes maybe $400K on a house that he originally bought some 20 years ago for $83K. He has mentioned maybe having to sell this summer (fixed income, and won't be able to afford the payments after the latest equity-extraction of cash runs out).

I think that long-time homeowners who are underwater is the 800-pound gorilla in the closet that nobody is talking about. Sure, we can all agree that many of those who bought recently may be in trouble, but nobody thinks about those 10-15-20 year homeowners who couldn't resist the temptation to 'pimp that equity' and are now paying the price.

[rose-colored-coolaid]

excellent point redmondjp. I would be extremely interested if someone could give us an idea of how bad that trend has actually bend.

If nothing else, the prolonged decline in percentage of ownership (total equity is less than 50% nationwide) suggests that this group of Housing ATMs users is much larger than expected.

I would even go so far as to say that I know more owners with HELOCs, or who refinanced to pull out significant equity than without.

[biliruben]

Given that the value of homes has doubled and even tripled in some places over the last 10 years, yet the equity is declining, that makes it obvious that equity extraction has been absolutely huge.

which uses FED data to look at the trends in a graph:



It looks like extraction was running at well over half a trillion a year for most of the boom, with it slowing significantly recently.

[rose-colored-coolaid]

Back of the envelope math here, but $500 billion a year for say about 5 years is $2.5 trillion.

I can't recall for sure, but I think there are around 60 million residential homes. So figure that the average equity extraction per home over that period of time is about $40,000. That's a fairly shocking number to me, even as I write it.

This is going to be a huge issue!

[jjl]

In my Bothell market study, I've found those with no equity bought within the last 24 months. Long terms owners have pretty deep equity. I don't have a number for you but I was surprised how few of the long term owners had taken out large 2nd mortgages. I am tracking 1st, 2nd and the occasional 3rd mortgages. Keep in mind that my data is lmited to homes that are "on the market" and have sold in the last 6 months. I don't think you will find a large % of long term homeowners who have tapped their equity for toys and such.

[rose-colored-coolaid]

jjl, but what percentage tapped equity for renovations which are losing their value? In theory, if you pulled out $30k and renovated the kitchen it increased the value of the house by that much, but I wonder if that will play out in practice. It's entirely possible that such actions could end up being a silent equity loser on houses.

Thought your upgrade would return 98%? Think again when it returns 20%...

[Alan]