Home equity plunging

Home equity plunging

July 4th, 2011 in Opinion Free Press

The Chattanooga area, with some bright job prospects, has avoided some of the extreme effects of the collapse of the housing market. But lots of Americans who have tried to sell homes in the past couple of years have found that they cannot get a good price for them.

For instance, home prices in major cities around the country recently dropped to about where they were nine years ago. Even with mortgage rates low, the weak economy has potential home buyers biding their time. Also pushing home prices down are high rates of foreclosures - often by people who have lost their jobs or by those who unwisely bought homes at adjustable rates, only to see the rates tick upward, making the payments unaffordable.

But as home prices have plunged, Americans' equity in their homes is also sinking.

Ten years ago, typical U.S. homeowners had 61 percent equity in their homes. That just refers to the percentage of their homes that they actually owned, as opposed to the percentage still owned by the lender. Naturally, as a person makes regular house payments, he owns a greater share of his home, bit by bit.

But with home values collapsing, the amount of equity that the average homeowner has is plummeting, too. While it was 61 percent a decade ago, now it's only 38 percent, the Federal Reserve reported recently.

That means homeowners' investment has sharply dropped in value.

The federal government helped create the housing crisis and all these negative effects by encouraging unwise mortgages for buyers who were poor credit risks. It did so in the name of "fairness."

But we doubt that those who have lost their homes because of unwise borrowing consider it very "fair."

It is past time for the government to stop intervening in the housing market and distorting the lending process.