Homeownership Afloat

With distressed homeowners in the news – and foreclosures, short sales, and dramatic loss of equity is news – it is easy to overlook the equity that has been retained by American homeowners.

 

Syndicated columnist Ken Harney asked mortgage data cruncher CoreLogic to do just that. The results were recently published in the Los Angeles Times, which, like ForSaleByOwner.com, is owned by Tribune Co.

 

Yes, total home equity has dropped nearly in half since 2005, to $6.2 trillion, according to the Federal Reserve. But a third of all homeowners don’t owe on their houses, and for them, the real estate bust simply wipes off the frosting; they’ve got plenty of cake left. Harney reports that CoreLogic figures: 

• 48.5% of U.S. homeowners have at least 25% equity in their homes
• 24.6% of those with mortgages have more than 50% equity
• New York and Hawaii are the states with the highest typical home equity, with nearly half of homeowners owning nearly half of their homes
• The winning combination for high home equity: high incomes plus low mobility. In other words, get a healthy income. Buy a house. And stay in it.

 

Image courtesy of Morguefile contributor phaewilk.

 

No, We Didn’t Spend Our Houses

As the wrestling match between regulators, lawmakers and banks goes into overtime, it appears that some lenders hope to retroactively rewrite the terms of second mortgages to put them on a par with first mortgages.

 

While laying out a well-reasoned argument against  this, Jesse Eisinger of the New York Times makes an egregious sideswipe at American homeowners that is untrue and unfair. “…cast your mind back to the height of the housing bubble. People used their homes as A.T.M.’s, withdrawing billions from their home equity to finance motorboats and meals at Applebee’s.”

 

Once and for all, let’s set the record straight: Americans did not eat their houses up with home equity lines of credit and second mortgages.

 

Most people did not joyride their home equity into foreclosure. They might have had more fun if they did, because most people re-invested in their homes precisely because the prevailing wisdom of the moment was that doing so was prudent. A recent report from the Federal Reserve Bank of Boston cites already-published research about where those home equity dollars went:

• 35% - home improvement 
• 26% - repayment of other debt 
• 16% - consumer purchases (there are your boats and Applebee’s splurges) 
• And the rest to starting businesses and the stock market – in other words, rebalancing their asset allocation from a nonperforming asset to an asset expected to throw off income.  

For every dollar taken out in home equity, Americans spent 20 cents on home additions and improvements.

 

Did they get their money back?

 

Uh, no.

 

But they weren’t stupid about it. So let’s stop saying they were.

 

Image courtesy of Morguefile contributor mconners.

 

Fixed: Remodeling Market Starts To Recover

This just in from the Joint Center for Housing Studies of Harvard University: Remodeling is about to rebound. 


In its annual deep dive into the world of hammers, tile and new appliances, the researchers  reported that though remodeling expenditures have dropped 12% from the 2007 peak, a new trend is taking hold.  Homeowners are still pacing remodeling expenses closely with home value, but are starting to spend a little more on projects that maintain value.

That means: 

• Spending on  maintenance, especially exterior projects, from kitchen and bath remodeling
• Homeowners in major metropolitan areas outspent homeowners in small markets
• Homeowners in pricey markets continue to spend on their houses
• Older homeowners, who are more likely to have substantial equity, cut back on remodeling least

Still, remodeling faces stiff headwinds. Lenders have trimmed home equity lines of credit because home values are declining. (Nationally, homeowner equity has plummeted 40.4% from 2007 to 2010.) Unemployment is still high, and rising taxes are canceling the small raises won by those who are employed.

Here’s what this means for you – the homeowner who has been circling potential improvement or maintenance projects:

• Contractors who survived the downturn have the best and most talented tradesman and subcontractors. Insist on the most qualified, innovative designers and tradespeople for your project.
• Think curb appeal. If all your neighbors are keeping their houses’ exteriors looking great, don’t spend on hidden assets like  a fancy bathroom in the hopes that eventual buyers will see past your scruffy front entry and crumbling roof.
• Iffy financing trends mean that potential buyers will be worried about monthly carrying costs. When you upgrade or replace your heating and cooling systems, windows, doors, roof, and appliances, document the energy savings so you can show eventual buyers the exact monthly utility costs of the house.

Image courtesy of Morguefile user ppdigital.