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Rita Conners
Realtor
DRE# 01234567
o | 800.555.4321
c | 800.555.1234
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March, 2013
Strength in Equity
We don’t talk that much about how much equity Americans have in their homes. It’s difficult to compute, but it’s actually the foundation of the American Dream. And there’s some very good news: Our equity positions have been growing.
But what exactly is “equity”? How much equity you have defines the extent of your ownership in your personal residence vs. your lender’s ownership. If, for example, you buy your home with 20% down, your resulting equity position at the time of the purchase is 20% of the value of the home; the rest of your home’s value is the amount of the loan or the loans with which you purchased the home.
Okay, your beginning equity position in this example, at 20%, would amount to $100,000 if the total value of the home were, say, $500,000. That is your money, and it will rise and fall with the amount your home’s value rises or falls over time, along with how much you pay down your loan balance with your monthly payments over time.
In the right circumstances, when your home’s value is growing, increasing the size of your equity, your home can offer you a savings program with good upside potential. In the worst of circumstances, when real estate market values are declining, you may end up watching some of your equity vanish. But that is so with almost all investments. Notice that the same is true for the nation as a whole: The entire economy improves as our equity positions improve.
The good news—and yes, there is definitely good news today—is that homeowner equity has been increasing once again in our nation. As Steve Cook wrote recently in The Niche Report, “The equity Americans have in their homes is nearing $8 trillion, still well below the nearly $14 trillion in equity that existed before the housing downturn but it is nearly $2 trillion above the trough it reached in the first quarter of 2009.”
Relieving the Pressure
This lifts a good deal of pressure from both the overall real estate market and from individuals’ financial positions. No longer buried beneath debt resulting from vanishing equity—no longer “underwater”—they can get on with their lives…and the economic recovery has that much more strength as a result.
As you can see, the rebuilding of people’s equity means there is more money in the U.S. economy. And more money in the economy creates ever more money in the economy. This is not a puzzle; it’s a matter of normal economic growth. A real estate recovery often precedes and supports overall economic recovery or, as is often said, the real estate often leads the rest of the economy out of a downturn or recession.
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Advances in Real Estate Affect Overall Economy
“As tangible proof that the United States economy is highly dependent on the health of its housing market, a major home improvement and hardware retail chain has announced a boost in seasonal and permanent hiring. A recent corporate announcement by Lowe’s indicates that the American retail giant intends to boost their staff by 45,000 seasonal employees to help them through the busy home remodeling season, which begins in the early spring.” [Rick Roque, The Niche Report]
Huge Numbers of Completed Foreclosures
“Home sales in December dropped by 1% from November, the National Association of Realtors® reported, but still stood neary 13% above the levels of one year ago. That means home sales have risen from the year-ago month for 18 straight months. For 2012 as a whole, sales were up 9% to 4.65 million units, the highest annual total since 2007. Prices, meanwhile, are picking up because the number of homes for sale continues to drop despite the sales volume gains. The number of homes for sale fell to 1.82 million at the end of 2012, an 8.5% drop from November and a 21.6% decline from one year earlier….” [Nick Timiraos, The New York Times]
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