Kenneth Harney of the Washington Post has an article about home equity, citing reports from the Federal Reserve and real estate analytics firm CoreLogic. Here is some data:
Home equity soared in 2013 by $2.1 trillion to a total of $10 trillion. The high point was $12 trillion in 2005. 4 million homeowners country wide climbed out of negative equity last year. Close to 50 million people own homes in the United States, with about 6.5 million of them in negative equity positions. 12 million home owners were underwater in 2009. That’s a huge drop! The states that had the highest run up in prices during the boom – particularly Nevada, Florida and Arizona – still have the highest percentage suffering with negative equity, 30.4%, 28.1% and 21.5% respectively.
It’s the “lower” end of the market carrying most of the negative equity. Just 8% of homes worth $200,000 or more have negative equity; 19% of homes under $200,000 report negative equity.
CoreLogic says having positive equity in your home is one thing, but do you have adequate equity? Or, are you “under-equitied”? Under-equity means you have mortgage debt in excess of 80% of your home’s resale value. The less equity you have, the less financial options you have – such as refinancing or obtaining an equity credit line. About 21% of all mortgaged homes nationwide are “under-equitied”, and 1.6 million owners have less than 5% equity.
My personal experience in talking to holders of owner carry back notes in different states is that home equity has made a strong comeback. Many are in fact “under-equitied”, but good equity exists where it was absent just a few years ago. As always, sellers willing to carry a note need to construct strong terms to protect themselves. A healthy down payment goes a long way to providing that safety net.
