how many home-owners have no equity?
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.
http://calculatedrisk.blogspot.com/2007/12/homeowners-with-negative-equity.html
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).
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.
http://calculatedrisk.blogspot.com/2007/12/homeowners-with-negative-equity.html
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).
Comments
Here is a partial answer for you sniglet.
Homeowner Equity Is Lowest Since 1945
....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.....
I did see something about this back in March. It would sure be great to see this tracked on a monthly basis. Even better, it would be great to see how this compares with decades ago.
I wonder if the Seattle area has the same general trend or if the lack of any serious price declines has kept a lot more home-owners afloat.
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.
Anyone who bought in the last 18 months has no appreciation equity. If they have equity it was through down payment.
My eyes did something like this :shock: when I read your statement. That's worst than I expected since we are so late to the game. I can only imagine what it's like in California for instance where they've seen 25% declines YOY.
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.
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.
Here's a nice article at Calculated Risk 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.
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!
Thought your upgrade would return 98%? Think again when it returns 20%...
Way back when I owned a house I looked at doing renovations. Everything I read said that putting $30k into a kitchen increased the price by substantially less than $30k.
Bathrooms gave the best percentage returned but even that was only around 90%.
During the heyday of the boom (think 2005's Times with "Why we are gaga about housing"), I was reading articles which suggested renovation of either a kitchen or a bathroom would return nearly 100% of the investment. I actually remember seeing some reports that a bathroom upgrade (if done wisely) could return 102%.
Which of course makes no sense, because how likely is it that the next guy wants the exact same color of tile as you do? So I agree with your assessment, but withhold the argument that many people might have expected much better returns.
http://www.costvsvalue.com/index.html
For the "pacific" region it looks like their data has a few things paying back
http://www.costvsvalue.com/pacific.html
but nothing on the scale of "invest $50k, make $200k" that flippers have thought was a new business model.
Isn't it ironic that even during the boom that theory was a horrible business model. A better model would have been "buy, sit on it for 9 months, and then sell for $160k in profit".
Imagine, making more profit while doing less work!
I consider the $50k investment to be "guilt payoff" because people don't really like getting something for nothing. They did "real work" to earn that money. It wasn't just handed to them on a silver platter.
As long as "real work" means that they hired someone to do the work.
I've thought that for a while - that the "fix" part of the "fix n' flip" was just so the flippers could feel that they weren't engaging in pure speculation.
actually, according to what I've seen on HGTV - the real point of the "fix" wasn't to sell the house. it was to have Kendra Todd hire an appraiser to tell you how much more it was worth. Then maybe take a HELOC.
So, let me get this straight. Take out a HELOC to 'fix', then appraise. Then because you're so excited that the 'fix' increased your equity take out another HELOC and buy a boat/TV/snow mobile/japanese sword/vacation?
Yup, sounds about right.
a) You buy a POS fixer for $500K.
b) You 'invest' $150K in new kitchen, master BR/bath addition, etc etc, and
c) Presto! Your house is now worth $750K -- WOO HOO!!! (high-fives all around)
You are not likely to get all of your money back on any kind of renovation (and yes, I realize that this flies in the face of almost every RE agent's advice)--what I will say is that having certain renovations or repairs done (updated kitchen/bath, new roof, new vinyl windows, etc) will make it much easier to sell your house, provided that it is priced properly. And this is why RE agents will readily suggest that you do such things--because it makes their job easier (always easy to spend other people's money) and if in fact it does result in a higher selling price, then it means a higher total commission for them!
Let's say that I replace my single-pane aluminum windows with new vinyl ones, and pay a contractor $20K to do the whole job for me. Does this necessarily increase the value of my house by $20K? I doubt it. Does it decrease the likelihood of a buyer saying "ewwww, aluminum windows" when they first see the house? Yes. Is that worth my $20K up front? That's the $20K question, isn't it?
That is more than the total amount Ray makes on a house!
It might be amusing, if a RE agent is recommending extensive revisions to a house prior to putting it on the market, to suggest that the cost of the extensive revisions should be deducted from the final sales price of the house for purposes of calculating the agent's commission. See if the agent still recommends the revisions then...
Forbes Magazine has this to say:
http://promo.realestate.yahoo.com/worst ... -debt.html
They pulled their data from US Census data.
Lets say you walked into a house that was listed for $450k and you got the price down to $425k, then post inspection you knocked it down another $400k for the bathroom that needs repairs/remodel. You then put that $25k into the bathroom. You are ahead.
I think that's some kendra todd math there. It's been well discussed in another thread that in a typical real estate market, remodeling pays back at best 75-85% of the investment.