We've all been hearing terrible things about the housing market, but I don't think it all sunk in for me until I read this article last week. It said that Americans own a smaller percentage of their homes than they have since World War II, and that the average homeowner now has 38 percent equity, down from 61 percent a decade ago. Normally, home equity rises as you pay off the mortgage-- but if your house, like so many others in the past five years, has lost significant value, you are losing equity even as the balance on your home loan is getting smaller.
One of the main attractions of buying a house when we did was the prospect of equity. Living in an apartment was like throwing our money away every month, but paying toward a mortgage actually meant something for our financial future. Our house was priced fairly low for the area since we purchased toward the end of the financial meltdown, and after we'd lived here for a year, it was cool to be able to say that we actually owned a portion of it. (Granted, a small portion... but we take what we can get.) It's also wonderful because equity is like real money when we go to buy another home or do big improvements to our current one. But what happens if our equity gets washed out from under us, like so many other American homeowners? Issues that we have no control of, namely foreclosures in the surrounding area. How can you even ensure that your equity really means anything in the current market? Go door-to-door to your potential neighbors asking them if they plan to default on their mortgage? Seems a little absurd, doesn't it? But when we're being responsible homeowners, it really sucks that others' actions could impact our financial well-being, even if their actions were unintended consequences of an economy in the gutter.
I think the silver lining of the article was that out of 74.5 million homeowners, about 40 percent (or 29.5 million) have either paid off their mortgage completely or bought their home with cash. Hopefully that number will rise along with home equity in the next decade. Come on, America. Let's get moving ahead instead of backward.