Homeowners' portion of equity slipped to downwardly revised 49.6 percent in the second quarter of 2007, the central bank reported in its quarterly U.S. Flow of Funds Accounts, and declined further to 47.9 percent in the fourth quarter — the third straight quarter it was under 50 percent.Ten per cent of houses is a lot. It's one in every ten. If each of your fingers were a house, one of your fingers would be under water.
Moody's Economy.com estimates that 8.8 million homeowners, or about 10.3 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9 percent, will be "upside down" if prices fall 20 percent from their peak.
The latest Standard & Poor's/Case-Shiller index showed U.S. home prices plunging 8.9 percent in the final quarter of 2007 compared with a year ago, the steepest decline in the 20-year history of the index.
The news follows a report from the Mortgage Bankers Association on Thursday that home foreclosures skyrocketed to an all-time high in the final quarter of last year. The proportion of all mortgages nationwide that fell into foreclosure surged to a record of 0.83 percent, while the percentage of adjustable-rate mortgages to borrowers with risky credit that entered the foreclosure process soared to a record of 5.29 percent.
It makes a certain amount of sense that our total equity has dropped below half, because the most expensive houses should be the ones to go through zero first. If I pony up $20,000 in fees and you give me a $4M house, I have zero equity. If my twenty neighbors own their $200K houses outright, our neighborhood has 50% equity.
So, OK. To stay out of a depression, we have to leave the country. But, where isn't there a housing bubble? Brazil, Spain, South Africa, anywhere you might think of going seems similarly hosed, even outside the fact that they'll lose the US as a market.