Home owners’ equity in real estate improved as home prices continue to increase and mortgage debt expands slowly.
Previous analysis of household balance sheets from the 2016 Survey of Consumer Finances (SCF) indicated that the primary residence was the largest asset category on the balance sheets of households in 2016 and it accounted for about one quarter of all assets held by households. For homeowners, the median amount of primary residence equity, home equity, rose with age. The Survey of Consumer Finances (SCF), published by the Board of Governors of the Federal Reserve System, provides data about family’s balance sheets every three years.
The latest quarterly Financial Accounts of the United States, published by the Board of Governors of the Federal Reserve System, finds that the value of owners’ equity in real estate, the difference between the market value of owner-occupied real estate and home mortgage debt, rose by $1.3 trillion over the past four quarters and reached $15.4 trillion in the third quarter of 2018. On a nominal and not seasonally adjusted basis, the market value of owner-occupied real estate increased to $25.6 trillion totally in the third quarter of 2018, $298 billion more than the second quarter of 2018 and $1,526 billion more than the third quarter of 2017.
Home price appreciation over the past seven years has largely contributed to the record high in the value of owners’ equity in real estate, as shown in Figure 1. According to S&P Dow Jones Indices, the Case-Shiller U.S. National Home Price Index rose by 3.2% at a seasonally adjusted annual growth rate in December 2018 and increased by 4.7% over the year of 2018, on a monthly average. Since the Great Recession, home prices have risen for almost eight years.
Additionally, the improvement in home equity partially reflected slow growth in home mortgage debt. A decade ago, when the loan-to-value (LTV) ratio climbed to the highest level of 63%, the value of owners’ equity in real estate dropped to as low as $6.1 trillion in the first quarter of 2009. Between 2011 and 2018, the market value of households’ real estate rose by 59%, however, home mortgage debt increased by 3% over the same period. As a consequence, the LTV ratio decreased and the value of owners’ equity in real estate rose.