NEW YORK The equity that Americans have in their most important asset their homes has dropped to its lowest level since the end of World War II.
Homeowners' portion of equity slipped to 46.2 percent in the first quarter from a revised 47.5 percent in the previous quarter. That was the fifth quarter in a row below the 50 percent mark, the Federal Reserve said Thursday.
The total dollar value of equity also fell for the fourth straight quarter to $9.12 trillion from $9.52 trillion in the fourth quarter, while Americans' total mortgage debt rose to $10.6 trillion from $10.53 trillion.
A homeowner's equity is the market value of a property minus the mortgage debt. And homeowners' percentage of equity has declined steadily even as home values surged during the housing boom due to a jump in cash-out refinancing, home equity loans and an increase in 100 percent financing.
Experts expect equity to decline further as falling home prices erode the value of Americans' largest asset, dragging more homeowners "upside down" on their mortgages.
At the end of March, nearly 8.5 million homeowners had negative or no equity in their homes, representing more than 16 percent of all homeowners with a mortgage, according to Moody's Economy.com Chief Economist Mark Zandi. By June 2009, he estimates that will increase to 12.2 million, or almost one out of every four homeowners with a mortgage.
But to put that number in perspective, one out of every three homeowners own their properties free and clear, with no mortgage at all.
Still, Zandi said, "For most, their home is their key asset. If they have no equity in their home, likely their net worth is negative too. Their entire balance sheet will be underwater."
The report also showed that Americans' total net worth dropped to $55.97 trillion in the first quarter from $57.67 trillion.
Zandi expects prices to fall 24 percent from peak to trough. Last week, Standard & Poor's/Case-Shiller said its national home price index fell about 14 percent in the first quarter compared with a year earlier, the lowest since its inception in 1988.
Prices nationwide are at levels not seen since the third quarter of 2004.
Homeowners with no or negative equity are more likely to fall behind on their mortgage payments or, in frustration, mail the keys to the lender and walk away from their mortgages, a phenomenon more lenders are seeing. This will only increase foreclosures, which have been surging the last two years, and further exacerbate the housing downturn.
The Mortgage Bankers Association said Thursday the rate of new foreclosures and late payments in the first three months of this year were the highest on record going back to 1979.
Almost 1 percent of mortgages fell into foreclosure, surpassing the previous high of 0.83 percent in the last quarter of 2007. The percentage of Americans who have missed at least one mortgage payment jumped to 6.35 percent, up from 5.82 percent in the prior quarter.
Jay Brinkmann, the association's vice president of research and economics, told The Associated Press he anticipates foreclosures and late payments to continue increasing in the months ahead as prices keep dropping as expected.