NCPA - National Center for Policy Analysis

Homeowners See Equity Dwindle, Mortgages Increase

January 19, 2001

During the 1980s and 1990s, homeowners borrowed increasing sums against the value of their homes, according to Federal Reserve reports. The proportion of Americans' equity in their homes now stands at a record low.

  • The average home-owning household owed lenders 46 percent of the market value of their residence during last year's third quarter -- up sharply from about 30 percent in 1982 and 40 percent in 1991.
  • For a typical family with a home worth the median market value of $144,000 late last year, that meant their equity was $77,760, while their debt was $66,240.

There are obvious benefits to borrowing against a home's equity at 7 percent or so in order to retire consumer debt carrying interest charges of 15 percent or more -- even though that means that as borrowers near or enter retirement, they still do not own their homes outright. Also, borrowing against equity usually allows homeowners to deduct the higher interest they pay from federal taxes -- as well as providing them with the extra liquidity to invest in stocks.

But there is a downside if a recession were to reverse the trend of appreciating home values and homeowners found themselves stuck with a home worth less than they paid for it -- and heavily mortgaged at that.

Source: Louis Uchitelle, "Equity Shrivels as Homeowners Borrow and Buy," New York Times, January 19, 2001.


Browse more articles on Economic Issues