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Home equity sinks to nearly lowest point since World War II

Posted by Tracy in Consumer Headlines, The Economy and has No Comments
Jun 10 2011

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.

To read the full story: USA Today

 

 

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