Washington Report

Home equity levels on rebound



You’ve probably seen some of the reports during the past week about home sales and prices. Housing is hot.

•  New home sales in May were almost 30 percent higher than a year ago, and average prices jumped by about 10 percent during the past 12 months to $308,000.

•  Resales of homes were up by 13 percent in May over May 2012. Median prices increased by 15.4 percent, the sixth straight month of double digit gains and the largest monthly advance since October 2005.

•  Median prices of new listings in some cities where inventories of homes listed for sale are tight and multiple bidding situations are routine have gone off the charts. In the Los Angeles-Long Beach area, list prices were nearly 28 percent higher in May than the year before, according to data compiled by Realtor.com from local multiple listing services. In San Diego, median list prices were 21 percent higher. Washington D.C., 18.8 percent. Seattle, nearly 18 percent. Charlotte, N.C., 11 percent.

But one key housing number that hasn’t gotten as much attention — yet directly affects the financial health of millions of Americans — is home equity. Thanks to the big gains in home values, total home equity balances have grown by more than $2 trillion within the past 12 months to nearly $9.1 trillion, a 28.6 percent gain, according to the Federal Reserve.

That’s $2.5 trillion above where it was at the end of 2011, but still below the $10 trillion it hit in 2007, on the eve of the market crash. During the last three months of 2012 alone, total home equity grew by a stunning $816 billion.

Numbers like these may be hard to get your head around, but they can be distilled down to the personal level: Home equity is the value of your home minus all the debt you have against it — generally first mortgages, junior liens and equity credit lines. If your house is worth $400,000 and your mortgage is $200,000, you’ve got positive equity of $200,000. If your home is worth $200,000 and your debt is $400,000 you’ve got $200,000 of negative equity. If you were at $60,000 negative equity three years ago, and the resale value of your home has gained by $70,000 plus you’ve paid down $5,000 in principal balance on your mortgage, you now have positive net equity of $15,000. That’s what’s happening across the country as real estate markets rebound from five years of recession.

Not everybody is sharing equally in the realty wealth boom, however. New data from a study by realty information firm CoreLogic reveal that current equity holdings vary widely around the country. In some metropolitan areas, just about every owner has positive equity. In Dallas and Houston, and on Long Island, N.Y., more than nine out of 10 homeowners have positive equity. Pretty much the only people with negative equity are those who overpaid on their last purchase and mortgaged the house to the hilt. In Seattle, 87 percent of owners have positive equity. In Los Angeles, just under 84 percent do. And in Washington, D.C., and its Maryland and Virginia suburbs, it’s 78 percent.

In other metropolitan areas, the economic rebound hasn’t replenished equity quite as fast. In Miami and Tampa-St. Petersburg, more than 40 percent of owners are still in negative territory; just under 60 percent have positive equity. Chicago also has been a relative laggard in the recovery — with just 65.8 percent of homeowners having positive equity, 34.2 percent with negative.

Nationwide, roughly 57 percent of all homeowners have at least 20 percent equity in their homes, but another 23 percent are what CoreLogic calls “under-equitied” — they’ve got less than 20 percent. As of the first quarter of 2013, 19.8 percent of all homes with mortgages continued to have negative equity, but that’s falling fast — down from nearly 22 percent at the end of 2012. If home prices rebound another 5 percent nationally, says Mark Fleming, chief economist for CoreLogic, another 1.6 million homeowners will regain positive equity.

So the overall outlook on home equity appears to be encouraging.

But last week another research organization, Harvard’s Joint Center for Housing Studies, sounded an alarm for one segment of owners: seniors. More and more owners in their 60s are carrying heavy mortgage debt loads. Between 1989 and 2010, the share of owners aged 60 to 69 with mortgage debt rose from just 32 percent to 60 percent.

Kenneth Harney is executive director of the National Real Estate Development Center.

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