On average, homeowners have 56.3 percent equity in their homes, according to Demos, a public-interest research group. In 1973, equity averaged 68.3 percent; in the 1950s, it was upwards of 80 percent. Two main factors are at work:
Homeowners are starting off further behind. In the past, the standard downpayment was 20 percent. A 2003 National Association of Realtors survey reported than less than half of all home buyers now put that much down; many obtain 100 percent, even 103 percent, financing.
Homeowners are yanking out cash. From 2001 through 2004, Americans took $330 billion in equity out of their homes, according Freddie Mac. In 2005 alone, they’ll pull out as much as $160 billion.
Demos’s senior research associate and author of A House of Cards: Refinancing the American Dream, Javier Silva, said that, even in the absence of a real estate crash, many families “are facing a financial crisis,” partially because they’ve taken on more mortgage debt. Already, the average American’s financial obligations ratio (FOR) – all your regular bills you must pay each month compared with income – has expanded to 18.45 percent. That’s up from about 15.5 percent in the early 1980s, and among the highest since the Federal Reserve began calculating the statistic.