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.
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