Home Equity Growth Even as Homeownership Declines

According to the Federal Reserve Board’s second quarter of 2016 release of its Financial Accounts of the United States report, household holdings of real estate, measured on a not seasonally adjusted basis, totaled $22.290 trillion in the second quarter of 2016, $1.388 trillion higher than its level in the second quarter of 2015, $20.902 trillion. At the same time, home mortgage debt outstanding, $9.553 trillion in the second quarter of 2016, rose by $144 billion over the same four-quarter period. Since the total value of household-held real estate rose faster than the aggregate amount of mortgage debt outstanding, then home equity held by households grew. Over the year, total home equity held by households grew by $1.244 trillion, 10.8 percent, to $12.737 trillion. Household’s home equity is now 57.1 percent of household real estate.

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Since falling to $16.0 trillion in 2011, households’ market value of real estate has risen by 39 percent to $22.3 trillion as home prices have risen. The increase in home values has contributed to the expansion in households’ home equity. As illustrated by the figure above, the trend in home values parallels that of homeowners’ equity. Households’ home equity reached a trough in 2009 when it fell to $6.1 trillion and was essentially flat between 2009 and 2011, showing little signs of a significant increase until 2012. Since 2011, households’ home equity has expanded by 99 percent.

While owners’ equity in their homes is rising as values appreciate, the falling home ownership rate means a smaller proportion of households are benefitting.  Part of the reason for the decline in homeownership is that it is becoming difficult to build new homes at prices a large part of the market can afford.  In an earlier post NAHB showed that 31 percent of homebuyers want to buy homes for under $150,000 while only 6 percent of new homes are priced that low.

Part of this divergence reflects the high costs of acquiring land, developing it into a lot and constructing a home on it. Labor shortages, lot shortages as well as government regulation are all contributing to higher construction costs and filtering to higher house prices. One bright spot however is that builders believe that lending standards on acquisition, development, and construction loans continue to ease.



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