U.S. Home Equity at Lowest Level in Generations

Home values are way down since the housing market hit its peak in 2006. The S&P/Case-Shiller Price Index, which is a measure of the home values in 20 metropolitan statistical areas is down by nearly a third since the market peaked. Although home prices were briefly buoyed by the 2009 and 2010 home buyer tax credits, they have now hit double dip territory, at least according to Case-Shiller. Different measures of home prices have yet to show a double dip, but they are all trending downward.

Since 2001, the average home equity has declined from 61 percent to 38 percent as of the first quarter of 2011. A recent report from Harvard showed that home equity went from $14.9 trillion in the first quarter of 2006 to $6.3 trillion in the fourth quarter of 2010. Home equity is now at the lowest level since World War II according to a new study from the Federal Reserve. By any measurement, this is pretty much an utter disaster.

A CoreLogic report released recently showed that 10.9 million American homeowners with mortgages are underwater (owe more on their mortgage than their home is worth). This accounts for 22.7 percent of all residential homes with mortgages. An additional 2.4 million more borrowers had less than five percent home equity.

Although price declines are not evenly spread, many people won’t recover their home equity for years, if at all. This problem is especially acute for many baby boomers who are approaching retirement age. Some people planned to fund their retirement with home equity and may have to delay those plans due to declining home values.

We’d love to hear your feedback on this situation. Will declining home values delay or change any retirement plans you had made? Are you, or someone you know, currently dealing with an underwater mortgage? Use the comment link below to sound off about the housing situation and how it’s affected you or your family. Your email address will never appear on our site along with your comments.