Federal Reserve: Household Equity at all time lows
The Fed just released the Balance Sheet of Households for 2007 Q4.
It shows home owners equity as a percentage of household real estate at 47.9%, the lowest on record. Going back 20+ years, this number was as high as 68.2% in 1986.
In other words, for the first time ever, banks/lender own more of the houses in America than the folks who live there do.
And, that's at current household prices. If the recent downward price acceleration gets any worse, we are going to see an even lower number.
Here's what Jim Walker of Asianomics had to say last month:
"Essentially, US house prices - on average - are down 10% on the year. The "on average" proviso is important. In New York and the Bay Area house prices are either up or flat. In some parts of the US - southern California, Nevada, Florida - the drop in house prices is in the region of 30-50%. This puts a lot of American's in negative equity.
RJ McCreary of Kelusa Capital sent me a few charts on US home values assuming a 90% loan-to-value ratio. In one, he estimated where we were in negative equity terms on different scenarios of falling home prices using November data. The chart shows the date at which the average home owner is under water given the fall in house prices so far - and then another 5, 10, and 15% drop. Anyone who has bought a house since late 2005 is now in negative equity (remember, this is assuming a conservative 10% deposit on the purchase).
That's ugly. Here's the referenced chart:
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Chart via RJ McCreary of Kelusa Capital
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Now for the real rub -- the reality is actually worse than the chart above.
Why?
Mortgage Equity Withdrawal (MEW) by existing home owners. You have seen our numbers in the past on MEW -- an ungodly amount of equity was converted into GDP -- cash withdrawals were spent on cars, renovations, vacations. This was all at the expense of Equity.
Now, we see via the Fed that not only was this an artificial prop to GDP, there was a real cost to it -- Household Equity is below 50%. This is unprecedented in American economic history.
We do indeed live in interesting times . . .
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Previously:
Why the Real Estate Slow Down Matters So Much
Wednesday, June 21, 2006 | 08:26 AM
http://bigpicture.typepad.com/comments/2006/06/why_the_real_es.html
More on Mortgage Equity Withdrawals and Consumer Spending
Tuesday, April 24, 2007
http://bigpicture.typepad.com/comments/2007/04/more_on_equity_.html
Sources:
Flow of Funds Accounts of the United States
FEDERAL RESERVE statistical release March 6, 2008
http://www.federalreserve.gov/releases/z1/Current/z1.pdf
Americans poorer than a year ago; Household net worth falls 3.6% in 4th quarter
Rex Nutting
MarketWatch, 12:14 p.m. EST March 6, 2008
http://tinyurl.com/2w4zxv
Manic markets, US home prices
Jim Walker
Asionomics, 27 February 2008
http://www.asianom.com/
Thursday, March 06, 2008 | 03:09 PM | Permalink
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Comments
Put your heads between your legs and kiss your ass good-bye.
I'm on the edge of my seat to see how long the markets remain in denial.
Posted by: Will | Mar 6, 2008 3:17:20 PM
Zactly - MEW is the real cancer in the system. Homeowners that bought before the bubble and should therefore have plenty of equity to weather its collapse are all screwed too. They all gutted their equity as prices rose and are now sitting on the same huge debts as the bubble buyers.
Posted by: mappo | Mar 6, 2008 3:21:15 PM
"We do indeed live in interesting times . . ."
Should that read (for now/future generations)
We do indeed live in "Borrowed" times......
Posted by: MarkTX | Mar 6, 2008 3:22:40 PM
I'm building an ark!
Posted by: Chief Tomahawk | Mar 6, 2008 3:26:36 PM
Whoa!
Last half hour of trading and who does CNBC drag out?
Charlie G!!!!!
Posted by: Chief Tomahawk | Mar 6, 2008 3:27:56 PM
In essence then this run up in the GDP and stocks has all been a ruse. Any governmental intervention in the mortgage markets to stop the bleeding will simply put an artificial floor under it. The DOW and S&P should be at half their current levels.
Posted by: Pat G. | Mar 6, 2008 3:37:04 PM
Gimme a B
Gimme a O
Gimme a T
Gimme a T
Gimme a O
Gimme a M
What's That SPELL!
Could this be Goldilocks coming back home, all dolled up and shaking her ass? Buy her a drink, sailor? She's HOT!. She's ready. Fly her to the moon.
Posted by: cinefoz | Feb 22, 2008 4:00:58 PM
Is the Cinefoz still around? his posts have gotten fewer. To his credit, even though he was making this swing bottom call, there was a bit of a rally.
Posted by: B.B. | Mar 6, 2008 3:57:15 PM
I know people that are cashing in 401(k)s to postpone losing their house and to pay for gas to get to work. If that trend continues, the housing decline mess WILL spill over to equities in a major way.
I so want to be optimistic here but this is getting scary...
Does anyone have stats for IRA/401(k) redemptions?
Posted by: Matt | Mar 6, 2008 4:02:55 PM
- Thursday selloff won't last!
- On today's selloff, where's the volume?
- Bears look tired!
Posted by: Ben | Mar 6, 2008 4:04:34 PM
Citi reducing mortgage portfolio by $45MM by not cutting new loans. Talk about closing the barn door. Sheesh.
Posted by: Estragon | Mar 6, 2008 4:05:49 PM
an oldie, but a goodie...
http://www.satirewire.com/news/0106/dream.shtml
RECORD 75 MILLION AMERICANS NOW
PRETENDING THEY OWN THEIR OWN HOMES
Low Interest Rates Help Many Fulfill The American (Banker's) Dream
Minneapolis, Minn. (SatireWire.com) — Showing no ill effects from a weak economy, housing numbers released by the National Association of Realtors today showed that a record 75 million Americans are now participating in the mass self-delusion that they, and not their banks, actually own their homes...
Posted by: glory | Mar 6, 2008 4:11:24 PM
cinefoz said that he got bored with our negativity...
I'm still waiting to hear how housing is going to "normalize" in the next two months....
Posted by: Mr. Obvious | Mar 6, 2008 4:19:32 PM
I think cinefoz went down with his dinghy load. Nothing ventured, nothing gained.
The used to be an interesting stat from the Conference Board titled 'mortgage debt for non real estate purposes.' Back in the late 60's thru the late 70's it was running 5 to 7%. Hate to think where it is now.
The housing bust will no doubt sober people back to the realization that a house is what you live in, not an asset class to be toyed with.
I don't suppose for an instant that things will return to its former state but a little stabilization would be helpful.
My poor old Papa paid off his house in 1990. Look at all the fun he missed.
Posted by: Ross | Mar 6, 2008 4:24:26 PM
"In other words, for the first time ever, banks/lender own more of the houses in America than the folks who live there do."
Owning the means of production AND the capital. Komrade Gospodine Marx vould be bery proud. Da Plan is vorking.
Posted by: Francois | Mar 6, 2008 4:26:33 PM
I'm buying the DOW when it hits 10,000, again. No really, I think that'll be the bottom. Okay, maybe I'll wait 'til 8,000. No, maybe 5,000.
Oh what the hell, I'm never buying another promise from another sheister ever. That goes even for muni-bonds.
Keep your eyes peeled for the impending bankruptcy of my little county (Jefferson, in Alabama). It will be the largest muni bankruptcy in US history (about $3.2b in sewer bonds alone, $4.6b total). Talk about your negative, shit-sloppy equity.
It shouldn't be long--maybe even by this weekend. Is there any way to short shit?
Posted by: DonKei | Mar 6, 2008 4:29:00 PM
Sung to the tune of "Tomorrow" from the musical "Annie"
Our budget should be elastic
never pay with cash when you have plastic
I'll borrow, I'll borrow,
I'll mortgage tomorrow,
and pay back another day
(Courtesy of the Capitol Steps)
Posted by: Pool Shark | Mar 6, 2008 4:34:42 PM
You know what the problem is? Equity. Look at that word; it looks so solid sitting there. But I said to the partner, so 49.x% of equity in the U.S. is held by homeowners. So, what is OUR equity. Therein lies the rub. How the heck do you figure it out. I know how much we owe own the mortgage... but what's the house worth? That's a darn slippery number to be used to compute something as stationary sounding as "Equity".
Should I use the purchase price from 12 years ago? (68%) or the ZESTimate (tm)! (81%) or what? I'd need something like an equity clock to keep running tabs on the thing in the second case. Equity is an illusion until you cash out and one lonely buyer determines what it was all along. I can't even determine it for my house, how in the world can they determine it for the country?
Posted by: Darkness | Mar 6, 2008 4:40:15 PM
Feels like the RTC era all over again. The fear is almost off the charts.
Posted by: kk | Mar 6, 2008 4:47:20 PM
You can try this for property values in your hood.
www.zillow.com
Not guaranteed accurate, but it's a cute use of google earth.
Welcome to the ownership society. Too bad we didn't ask who the new owners were going to be. I hope they like pets.
Posted by: zot23 | Mar 6, 2008 5:00:28 PM
So here I sit with a pile of cash. No seriously made a few in the markets. Where do I put this money, well up into 3 to 7 figures.
I can get cash and burn it. Got enough gold/silver/platinum/Corn/oil/gov bonds/muni's to hold me a while.
For years foreign markets were a good investment, now that is looking doggey.
What is person to do now. I'm seriously thinking about averaging into the US market
indexes.
I also might buy a Chalet in Switzerland, serious. But I am really confused.
Posted by: LLL | Mar 6, 2008 5:17:43 PM
So here I sit with a pile of cash. No seriously made a few in the markets. Where do I put this money, well up into 3 to 7 figures.
I can get cash and burn it. Got enough gold/silver/platinum/Corn/oil/gov bonds/muni's to hold me a while.
For years foreign markets were a good investment, now that is looking doggey.
What is person to do now. I'm seriously thinking about averaging into the US market
indexes.
I also might buy a Chalet in Switzerland, serious. But I am really confused.
Posted by: LLL | Mar 6, 2008 5:19:58 PM
LLL,
Cash ain't trash.
If you do buy a Chalet in der Sweitz get one with a hay meadow and some cows. Seriously, farmland has yet to be priced off the charts. Use a little leverage (50%) and sharecrop it. I bet it will cash flow positive and double in value within 5 years.
I remember a friend who had 1,000 acres in Minn. The land values went from $200/acre to $1,000/acre between 71 and 78.
This commodity cycle has many years to play out. Don't believe those that tell you it's a bubble. They only say that because they don't own any..............yet.
Posted by: Ross | Mar 6, 2008 5:38:20 PM
For Matt's question on 401k withdrawals- Fidelity recently announced that 17% of their 401k accounts have borrowed against the account.
Posted by: larster | Mar 6, 2008 5:47:49 PM
Much home equity is now in the form of SUVs, big screen TVs, lavish vacations and other indulgences purchased with HELOCs.
Posted by: Lars | Mar 6, 2008 6:06:13 PM
LLL,
Buying a Chalet in Switzerland while the dollar index sitting at or near all time low. U are sooooooo cute!
:P
Posted by: Ben | Mar 6, 2008 6:11:20 PM
