Household Real Estate Equity Returns to Historic Low

| June 9, 2011

The Federal Reserve released the Flow of Funds for the first quarter of 2011 today. Although household net worth has rebounded slightly off of the 2009 low, household real estate percent equity continues to hold near historic lows below 40% as a result of the housing market implosion.

About one third of all households have no mortgage debt, so the more than 50 million households that do have a mortgage are well below the 38% equity level and nearly 11 million households have negative equity. These figures, while staggering, are exactly as anticipated in the wake of the most speculative bubble in US residential real estate history. Household mortgage debt as a percentage of GDP peaked slightly above 70% in 2009 and it has been slowly declining during the past two years as consumers have begun to deleverage.

This mortgage debt metric remains well above historical averages, suggesting that the consumer deleveraging process will likely continue for several years. As a result, consumption should remain under pressure for the foreseeable future as earnings that would otherwise be spent are diverted to debt repayment.

Source: The Pattisall Group Sea Pines real estate.
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Category: Commentary, Market Update

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