NCPA - National Center for Policy Analysis

Home Equity Fell Over Last Decade

November 17, 2000

On average, Americans had 2 percent less equity in their homes last year than they did in 1989, according to a study prepared by Freddie Mac for the Consumer Federation of America (CFA). The researchers blame low-downpayment mortgages and the increasing tendency of homeowners to borrow money on their abodes.

  • Hispanic homeowners suffered the biggest hit -- with their financial stake in their homes dropping 20 percent.
  • Black families, on the other hand, saw their equity rise by 12 percent over the past decade.
  • Lower-income families experienced a 6 percent increase in home equity since 1989.
  • The good news about low-downpayment mortgages is that they have boosted the homeownership rate -- which now stands at a record 67.7 percent.

Meanwhile, median home prices rose 49 percent from 1989 to 1999 -- to $133,300.

On average, home equity represents 50 percent of household net worth, according to Federal Reserve figures. Financial advisers recommend that homeowners pay off their mortgages before retirement in order to reduce their living expenses.

Despite the drag on equity rates, home-equity loans let many consumers swap high-interest-rate credit card debt for lower-rate loans that are generally tax-deductible. About one-fifth of homeowners say they have borrowed against their home equity -- with loans averaging $36,000 -- according to an Opinion Research survey conducted for CFA.

Source: Christine Dugas, "Homeowners Lose Equity in Spite of Economic Boom," USA Today, November 17, 2000.

 

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