Home Equity Sinks to Nearly Lowest Point Since World War II

From wire reports - June 12, 2011
http://abcnews.go.com/Business/home-equity-sinks-lowest-point-world-war-ii/story?id=13807274
Falling home prices have shrunk the equity Americans have in their homes to nearly the lowest percentage since World War II.

Average home equity plunged from more than 61% at the start of 2001 to 38% in the January-March quarter this year, the Federal Reserve said in a report Thursday. That drop comes as home prices in big metro areas have reached their lowest level since 2002.

Prices fell 33% in 20 cities through March from their 2006 peak, reaching their lowest level since 2003, according to the Standard & Poor's/Case-Shiller index of U.S. home prices on May 31. The decline signaled a "double dip" as the index fell below its previous post-housing-bubble low set in April 2009. Prices more than doubled from 2000 to July 2006.

Further declines in home prices are likely.

Robert Shiller, the economist who co-founded the S&P/Case-Shiller index, said a further decline in property values of 10% to 25% in the next five years "wouldn't surprise me at all.

There's no precedent for this statistically, so no way to predict," Shiller said Thursday at a Standard & Poor's conference in New York.

A backlog of foreclosures poised to hit the market means prices may stay depressed, dissuading builders from starting new construction.

Unemployment, which rose to 9.1% in May, and stricter lending conditions are signs that any recovery in housing may take years.

Shiller's comments paint a more pessimistic possibility for home prices than other forecasts. Additional declines will be "incremental," Bank of America CEO Brian Moynihan said last week..

While it would be a surprise to see prices fall steeply, it's possible for homes to lose more value if inflation picks up, Karl Case, co-founder of the index, said Thursday.

"You could have flat nominal prices but still have it go down 20%," Case said during an interview at the conference.

"If house prices stabilize, they could still go down in real terms. If we had inflation, it'd be great, because it'd mask a 25% decline."

The Fed report showed that household debt fell in the January-March period at an annual rate of 2% from the previous quarter.

That drop was due entirely to a decline in mortgages.

Auto loans, student loans and other consumer credit rose 2.4% — the second-straight gain after nine consecutive declines.



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