BluefoxToday blog : Housing wealth substantial, although largely overlooked

Housing wealth substantial, although largely overlooked

The media headlines have been relentless in sending the message that the residential real estate market in many areas is sinking fast. The glut of new and resale homes sitting for months without a viable buyer in sight is certainly worrisome, as is the trend of tightening underwriting guidelines in the mortgage sector. As a result of all that, prices are declining. The market is undeniably trying to find its footing again, but is it really that ill in the big picture? In the broad sense of national economics?

The Federal Reserve, or just the Fed, recently released its "flow of funds" statistics and they show that the equity homeowners had in mid-2007 amounted to a massive $10.9 trillion. It was arrived at by taking the market value of residential real estate, roughly $21 trillion, and deducting mortgage obligations of $10.1 trillion from it. This alone doesn't say much, only that it's a lot of money.

Let's go a little deeper into the issue. In the second quarter of 2007 homeowners lost $6 billion in equity when compared with the first quarter. That was expected. However, it was still $48 billion higher than in the fourth quarter of 2006. Some ground was lost, but clearly a $6 billion decline in a $10.9 trillion market is a drop in the bucket. 

Another observation points in the same direction. Many metropolitan areas enjoyed surging value increases during the explosion a few years ago. Prices actually more than doubled in 33 major cities between 2001 and 2006, according to the Fed's study. That was an unsustainable period of escalation. Today, the new Standard & Poor's/ Case-Shiller home price index reports that prices are down 4.4% on average in the 20 large markets it covered. They can be even lower than that, say 10-15%, and homeowners will still keep most of the appreciation they garnered during the boom. Letting go of 15% from a 100% gain should be easily palatable.   

One hard-hit city is Los Angeles where home values dropped 5.7% in the last 12 months, but are a net 88.9% higher since 2002, according to the Case-Shiller index. Las Vegas is also in the grip of a major correction and while prices are giving ground here, too, the end result is shaping up to be very similar to that of Los Angeles. Overall, as is evident, the picture isn't nearly as gloomy as the headlines make it sound.


Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 9 commentsEsko Kiuru • November 23 2007 07:00PM


Although not as gloomy as it sounds, my commissions (or lack therof) would say its looking pretty gloomy. I can't wait for the media spin to end.
Posted by Keisha Hosea-, Real Estate Solutions For Real People (KASI Homes ) over 12 years ago
I think we (as agents) need to step up to the plate and quit adding inventory to this market that is unnecessary.  
Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) over 12 years ago
Thanks for that important perspective.  Interesting stats. 
Posted by Katie Wethman, CPA, MBA, Realtor - Northern Virginia & DC Real Estate (Keller Williams) over 12 years ago


The media's focus unfortunately is very narrow.

Posted by Esko Kiuru over 12 years ago


NAR and National Association of Home Builders are trying to change their tone.

Posted by Esko Kiuru over 12 years ago


That would definitely help out.

Posted by Esko Kiuru over 12 years ago


These numbers help us get a fuller picture of the marketplace.

Posted by Esko Kiuru over 12 years ago
I am amazed at how we as an industry focus on numbers from last year - personally I have been using a 5 year average which is not nearly as bleak - and maybe just maybe the market will not be in the future to buy and sell within a year or two year period....
Posted by Thesa Chambers, Principal Broker - Licensed in Oregon (Fred Real Estate Group) over 12 years ago


It's important to see beyond the last few months.

Posted by Esko Kiuru over 12 years ago