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Home Equity Slips Below 50%

March 8, 2008

Federal Reserve says homeowners’ debt on their houses exceeds their equity for the first time since 1945

Americans’ percentage of equity in their homes has fallen below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday. What this means for homeowners among other things, is that their borrowing ability has decreased. If they want a home equity loan to pay for a large unexpected purchase, pay medical bills, or pay for their kid’s college tuition. The value of their home has decreased, but it is not cause for worry if you do not have to sell or borrow against your equity.  

Home equity, which is equal to the percentage of a home’s market value minus mortgage-related debt, has steadily decreased even as home prices jumped earlier this decade due to a surge in cash-out refinances, home equity loans and lines of credit and an increase in 100% or more home financing. Economists expect this figure to drop even further as declining home prices eat into the value of most Americans’ single largest asset.


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