Homeowner Equity as a Share of the Value of Real Estate

Homeowner Equity as a Share of the Value of Real Estate could normalize by late 2015 – early 2018.

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  • After 2 years of gains exceeding 5% per quarter, growth in household owners’ equity rose by a much more modest $177 billion (1.7 percent) from last quarter to a level of $10.8 trillion.  This is up $4.7 trillion from the trough during the housing crisis or roughly $53,000 per property[1].  Home owner equity is on the rebound as a result of construction, rising prices, and a continued decline in mortgages outstanding according to second quarter data from the Federal Reserve’s Flow of Funds.
  • Mortgage debt outstanding fell by less than $10 billion while the market value of household real estate rose $170 billion.  The total value of household real estate reached $20.2 trillion in the second quarter.
  • One way of judging whether we are back to a more “normal” market would be to look at the equity that is accumulated in real estate relative to the value of the real estate.  In total, home owners now have equity equal to slightly more than half of the total value of household real estate compared to as little as 37 percent in the first and second quarters of 2009.
  • The chart below shows that the share of equity was roughly stable at just less than 60 percent from 1995 to 2005.  Holding the level of mortgage debt outstanding constant, the value of household real estate would need to grow to about $23 trillion to reach that share of equity, or roughly a further 13 percent gain from its current level.
  • At the growth rate seen in 2014Q2, it would take until early 2018 to fully recover the share of equity in real estate, but if the growth rate is more rapid as was seen earlier in the year, the share of equity would be fully recovered by late next year (2015).

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[1] The Fed indicates that this includes owner-occupied housing, second homes that are not rented, vacant land, and vacant homes for sale.  Using the Census Housing Vacancy Survey, housing units meeting this description have totaled roughly 88 million for the past 8 years.

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