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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Elroy Jetson who wrote (25569)12/1/2004 5:32:03 PM
From: KyrosLRead Replies (2) of 306849
 
Say you have 10 homeowners, 6 with $1 million homes and 4 with $100,000 homes. The six with the million dollar homes have 50% equity and 50% debt -- $500,000 equity and $500,000 debt each. The four with the $100,000 homes have no debt -- $100,000 equity each. So, the overall equity is $3.4 million and the overall debt $3 million -- 54% equity, 46% debt. Also, 4 out of 10 homeowners, or 40% have no debt. You can see that the numbers are almost identical to the ones in your post. But, the homeowners with debt have 50% equity, which is very far from your calculations of somewhere around 20%. That's what Grace was trying to tell you in her post.

The numbers above are not unrealistic. People with expensive houses prize mortgage interest exemptions. So they maintain large mortgages just to get those exemptions. People with modest houses on the other hand do not have large enough mortgages to overcome the standard deduction, so they have a greater incentive to pay off the mortgage completely.
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