<<I'll have to research the change in home equity $$. My impression is numbers of homeowners have gone up, and valuation has increased each decade.>>
Home equity dollars have gone up, but that's a function of:
1) Number of homeowners (unquestionably at an all-time high)
2) Valuation of homes (still close to an all-time high)
3) Mortgage debt (at an all-time high and growing faster than 1&2).
The number I'm referring to is percentage of equity ownership relative to the overall value of the house. Why? It's a key metric in default risk on mortgage loans, should employment turns south. If someone has little equity built up, they're much less likely to remain "upside-down" in their homes should the market sour. Despite our roaring economy throughout most of the 90's, equity has declined, in part because of cash-out refinancings, in part due to relaxed lending standards (thanks Fannie!), and in part due to the bubble-like boom in new housing construction. Unfortunately, the risk assumptions used by Fannie, Freddie, and some of the other mortgage lenders have never been tested in a period of exploding unemployment. In a sense, we're all just big guinea pigs (which was the thesis of the article that started this fascinating discussion!) I suspect equity as a percent of home value will turn up again, as other investment options sour and as home values pull in, lender's (including Fannie) toughen loan standards and increase money down requirements, and prepayments increase. |
