Thursday, June 14, 2012

Q1 Gain in Home Equity Highest in 60 Years

Bloomberg -- "Americans are digging themselves out of mortgage debt. Home equity in the first quarter rose to the highest level since 2008 as homeowners taking advantage of record-low borrowing costs to refinance their loans brought cash to the table to pay down principal. The gain in percentage terms was the biggest jump in more than 60 years, according to an analysis by Bloomberg of Federal Reserve data. 

It’s the strongest sign yet that Americans’ home-loan debt burden is beginning to ease after the record borrowing that created, and ultimately popped, the housing bubble, leaving almost a quarter of homeowners with mortgages owing more than their properties were worth, said Richard DeKaser, deputy chief economist at Parthenon Group LLC in Boston. Half the mortgages refinanced in the fourth quarter reduced loan size, a record, according to Freddie Mac, the government-owned mortgage buyer. 

“The willingness of homeowners to carry housing debt has been radically altered,” said DeKaser, chairman of the American Bankers Association’s Economic Advisory Council. “When the market was booming, a mortgage was used as a leveraging tool, and now it’s seen as a risk.”

Measured as a share, rather than in dollars, homeowner equity was 41 percent of U.S. residential property value in the first quarter, including homeowners who don’t have mortgages, according to the Fed study released last week. The last time the share was that high was in the third quarter of 2008."

6 Comments:

At 6/14/2012 9:54 AM, Blogger VangelV said...

Home equity in the first quarter rose to the highest level since 2008 as homeowners taking advantage of record-low borrowing costs to refinance their loans brought cash to the table to pay down principal. The gain in percentage terms was the biggest jump in more than 60 years, according to an analysis by Bloomberg of Federal Reserve data.

Really? What would happen without FHA 3% loans being thrown around and a self imposed moratorium on foreclosures until after the election? Isn't it time we stopped with the hype and saw things as they are?

 
At 6/14/2012 10:06 AM, Blogger morganovich said...

This comment has been removed by the author.

 
At 6/14/2012 10:10 AM, Blogger morganovich said...

i think this has far more to do with cash buyers and loan tightness than with lots of refis.

refi activity remains low.

the % of transactions done for cash remains very high.

http://www.npr.org/2012/02/27/147346316/cash-buyers-squeezing-out-traditional-home-seekers

when i bought my current house in 11/2010, my offer was $300k lower than the competing one, but, as it was cash with no financing contingency, the seller took it over a contingent offer (they had just had a deal fall out of contract due to inability to get a loan and were very sensitive to this issue). cash in hand and a quick close has been king in the last few years.

the net equity in homes that actually have mortages remains deeply depressed (about 7% vs 45% in the 80's-90's)

is there any tangible evidence that these refis are putting big cash in as opposed to going to the folks that already had equity?

 
At 6/14/2012 11:50 AM, Blogger morganovich said...

"Half the mortgages refinanced in the fourth quarter reduced loan size, a record, according to Freddie Mac, the government-owned mortgage buyer."

one could assume this meant equity went up at first pass, but i do not think that is necessarily the case.

it could increase equity.

it could also just be a symptom of reduced equity.

if you own a $1 million home with $800k on the mortgage and it drops to 700k in value, sure, you would have to put cash in to refi. (probably around $240k) but you would still have lost equity.

you'd be at $140k vs 200k previously.

and, of course, that "new" home equity would have to come out of your other wealth somewhere.

putting cash into a house is zero sum from a personal wealth standpoint. (though it may affect net income)

 
At 6/14/2012 12:49 PM, Blogger bart said...

41% now, WAY down from the high of over 70% in the early 80s - and it still is far from breaking the long term down trend.

 
At 6/14/2012 4:48 PM, Blogger Hans said...

Pilot to bombardier, pilot to bombardier, have we reached the Carpe Diem target? Yes, we are dead on, Sir.

Bombs away. But, Captain, the Professor is in the target zone!!!

Bombs away! Eye, eye, Sir.

http://www.businessinsider.com/us-foreclosure-starts-2012-6

 

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