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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (1154)	12/10/2001 4:56:40 PM
From: GraceZ	Respond to of 306849

I wonder about the number primarily because of the way I suspect it is gathered. Is it gathered at closing? Usually your equity is at its lowest point the day the loan closes. If they are using the selling price of your home, is that selling price adjusted yearly to reflect appreciation of your home? 30 year mortgages are front end loaded where you pay off very little principle for the first five years. If you have homes turning over rapidly and lots of refinancing then you are going to have reduced percentage of equity per house but a much larger pool of equity and equity per capita. I can show you stable neighborhoods where houses don't turn over and there are a large number of people who own their homes with no mortgage at all here in Baltimore. I can tell you that they are some of the poorest neighborhoods with lots of elderly people who can't move out because their homes never appreciated with the surrounding counties. Their homes won't sell for enough for them to get into a better neighborhood. The "better" neighborhood probably has a lower percentage of equity per house but has a much higher equity pool and the owners have a higher net worth even while "suffering" from a low percentage of equity in their homes. I tried like hell to talk some west coast friends out of buying the house they rented. The house was selling for exactly double what my home cost me 7 years earlier and the two of them had an income that was about half of what my husband and I made together when we bought our house. Because they were below the income threshold to get a conventional mortgage, they got the owner to finance them with an interest only five year balloon. I told them it was suicide to do this since it didn't seem like their financial situation was going to change within the five years and they'd need to refinance to keep the house. They did it anyway and within two years the home had appreciated more than the home I owned for 7 years (twice the price and at a higher rate of appreciation) so they effectively had more equity in their house than I did and I have a 20 year 7 % mortgage and they had one where NO principle was being paid off at 8%! The percentage of equity they owned was lower than mine.....but if we both sold our houses the same day, my friends would have walked away with a lot more cash. If you were using the selling price of the house and the loan value, you'd figure they had zero gain in equity but the figure would be seriously flawed.

To: patron_anejo_por_favor who wrote (1154)	12/10/2001 5:22:23 PM
From: MSI	Read Replies (1) \| Respond to of 306849

Total equity has increased, even if the percentage compared to overal home value has decreased, if that is the case. I can see the impact of percentage equity decrease with a lull in the market as some increase in defaults, but primarily a reduction in cash-out financings as a source of input to the economy. It would be interesting to see if that is significant compared with the stimulus of the oil price reduction, tax reduction, $trillion fed injection, large fed spending programs, etc. etc. I would doubt it. I think cash-out financings is under $50b, while new stimulus is getting over $100b range. Home ownership is such a steady slow-moving asset for the average Joe, it seems to be dramatic only with high-end million-dollar homes, which fast-money can buy and dump and various prices. I'm building some homes in a neighborhood of million-plus homes near a high-tech center, and have seem reductions. While nowhere near what I expected, at least the tradesmen are finally lowering their prices and have stopped playing hard to get. Last year I was told $160/ft for quality construction but he "didn't have time for me right now", this year, being a cheapskate, I'll be doing owner-builder at almost 1/2 that.