HousingWire
82% of US homeowners have at least 30% equity in their homes
By Logan Mohtashami
The most recent National Mortgage Database (NMDB) Aggregate Statistics report from FHFA reveals the significant amount of home equity that American households possess. This should put an end to any discussions suggesting that the housing market is on the verge of a mass foreclosure crisis or that national home prices will crash like they did from 2007 to 2011.
Vast home equity cushion
Keep this very simple: 82.6% of homeowners in America have at least 30% of equity in their homes. Because we haven’t experienced a massive credit housing boom in the past 14 years, we simply can’t replicate the debt expansion or the cash-out debt expansion that was common in the run-up from 2002 to 2005, with mortgage credit demand. As a result, households that have lived in their homes for an extended period have accumulated substantial home equity, enabling them to sell and purchase another home if they choose to do so.
This situation differs from the years following the housing bubble crash, when nearly 15 million loans were under stress, and many late-cycle homebuyers had little to no equity. During that time, people were forced to sell in an underwater market.
Down payment and loan-to-value data are very different
As shown in the chart below, the loan-to-value ratio for American households is very low. How does this compare to the housing bubble crash years? The loan-to-value data averaged roughly 57% from 2005 to 2006. From 2008 to 2012, it increased to around 85% and remained at this level for several years. Currently, we are at 46.9%.
What is often overlooked in housing economics is that the percentage of down payments decreased from 2001 to 2008, meaning American households were putting less money down for their home purchases. In contrast, data from the National Association of Realtors (NAR) shows that down payments have been steadily increasing for many years.
Homeowners have long-term fixed debt products
Unlike the 2008 housing crisis, where many homeowners had adjustable-rate mortgages (ARMs) that were set to increase their payments to unsustainable levels, today’s mortgage market predominantly features fixed-rate loans with 30-year terms. Although the percentage of loans with mortgage rates above 6% is rising, the current loan structures mean that we will not see the same recasting of payments that we experienced in the past. Even the ARMs issued in recent years have different debt structures and underwriting standards compared to those from before.
As housing tenure increases, households with fixed long-term debt costs and rising wages tend to have better financial situations. This trend reflects the advantages of having a 30-year fixed mortgage, as it allows for predictable debt costs while benefiting from increasing wages.
Conclusion
I wanted to make this article as simple as possible, especially with the charts that I shared above. The current equity and debt landscape is significantly better than what we experienced during the historic housing bubble crash, something the graphs clearly illustrate. The benefits of the 2005 Bankruptcy Reform Law and the 2010 Qualified Mortgage Law continue to impact us today and will do so for many decades to come.
Logan Mohtashami is a renowned expert in the mortgage and housing ecosystem, recognized for his insightful analysis and commentary on the U.S. economy and real estate market. Mohtashami is a lead analyst for HousingWire and is a regular contributor on the HousingWire Daily podcast. With a background spanning over two decades in the mortgage industry, Mohtashami — nicknamed “Chart Daddy” — has the remarkable ability to decipher complex economic data and translate it into understandable, actionable insights. This knowledge has made Mohtashami a sought-after commentator and his expertise has been featured extensively in news outlets, including CNBC, where he is a frequent guest.