U.S. Household Balance Sheet Improves

The second quarter Federal Reserve Flow of Funds shows continued improvement in the financial position of U.S. households with real estate as the market value of all owner-occupied residential real estate (household owned) rose to $20.2 trillion. According to NAHB tabulations of the quarterly series, the asset or market value of owner-occupied real estate held by U.S. households increased $170 billion dollars while the liabilities (home mortgages) remained virtually unchanged from the first quarter reading. The equity position of U.S. households with real estate (the difference between assets and liabilities) increased nearly 1.7%.

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It is also useful to examine the owners’ equity in real estate as a percentage of household real estate. The ratio is calculated by taking the aggregate equity position divided by the market value of owner-occupied real estate held by U.S. households. The higher the ratio the more favorable is the financial position of U.S. households with real estate. The current reading of 53.6% is a significant improvement over the 36.7% registered in the first quarter of 2009.The ratio of owners’ equity in real estate as a percentage of household real estate has improved for 12 consecutive quarters largely due to rising home prices and low mortgage rates.

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The improvement in the balance sheet of U.S. households with real estate means fewer underwater homeowners, thereby unlocking housing supply and demand. This combined with steadily improving consumer confidence and a slow but steadily recovering job market suggest guarded optimism is not unfounded.



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