Housing Tsunami or simply rising water?
Americans' percentage of equity in their homes fell below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday. 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.
That marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945. The total value of equity also fell for the third straight quarter to $9.65 trillion from a downwardly revised $9.93 trillion in the third quarter.
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.
I took this from Mish's blog.
Think about this folks. We are only two years into the down cycle. Normally down cycles last five to seven years. Could 50% of American homeowners be upside down on their mortgages. What about 50% having zero or negative equity.
Believe it or not, a few years ago some of us saw this coming. Well it is now here. The problem is that NON HOUSING expenses are exploding. People have less and less money to spend on housing. When you have to choose between eating and shelter....eating wins every time. It is much easier to double up on housing than it is to hold off swallowing, even if all you are eating is footlongs.
Just think what is going to happen once the inevitable layoffs start picking up as governments have to adjust to lower tax revenues and business adjusts to lower sales.
Mommy, why is the water splashing on our balcony.....isn't this the third floor?