Home Equity is Increasing

In the first quarter of 2012 home equity rose to $6.7 trillion, its highest level since 2008, as homeowners are taking advantage of record low interest rates to refinance their loans and pay down principal. The 7.3% gain was the biggest jump in over 60 years according to Bloomberg's analysis of Federal Reserve data.

This appears to be the strongest sign yet that Americans' home loan debt burden is easing after the record borrowing that created, and later broke, the housing bubble, which left nearly 1/4 of homeowners underwater in their mortgages. Half of the mortgages refinanced in the fourth quarter of 2011 reduced loan size, which was a record according to Freddie Mac.

Homeowner equity was 41% of the share of U.S. residential property value in the first quarter of 2012, including homeowners who do not have mortgages, according to the Fed study. The share has not been that high since the third quarter of 2008, when it was 43%.

Residential mortgage debt peaked in 2007 at $10.6 trillion, which had doubled in six years, according to the Fed data. Since then it has fallen 7% and the value of all residential property has dropped 23%.

U.S. homeowers are not only bringing money to the table when refinancing their mortgages, many are also choosing to shorten their loan terms, which increases monthly payments. The average mortgage term dropped to 27 years in March and April, down from 29 years in February.  Nearly all U.S. mortgages have either 15 or 30 year terms. When the average falls it shows that more people are choosing 15 year mortgages. Refinancing applications are also at a three year high.

Home prices have dropped for six straight months through March to the lowest level in a decade, which is 35% below the peak prices during the housing boom according to the S&P/Chase-Shiller price index of 20 U.S. metropolitan areas. However, a 3.4% increase in home sales in May may signal that prices are beginning to stabilize.

According to the median forecast of 93 economists surveyed by Bloomberg, the U.S. economy probably will grow at a 2.2% pace in 2012, which is the third year after the recession. That compares to a 3.9% average expansion rate in the third year following the 1982, 1994, and 2001 recessions In 2013 the growth rate will probably be 2.4% according to theeconomists surveyed by Bloomberg.

Currently approximately 23% of mortgage holders are underwater on their loans, meaning they owe more than their homes are worth, according to CoreLogic Inc. Approximately 2.1 million properties were in foreclosure in April, according to Lender Processing Services.

Retail sales in the U.S. fell in May for a second straight month, prompting economists to cut forecasts for economic growth as limited job growth and income gains hold back customers. The 0.2% decrease matched April's drop that was previously reported as a gain, according to Commerce Department figures.

Annual increases in national income slowed from $693 billion in 2010 to $581 billion in 2011, according to the Bureau of Economic Analysis. The first quarter of 2012's gain of $127.7 billion puts 2012 on pace for a $510.8 billion increase, which is the lowest since income dropped in 2009.

If you are struggling to keep up with your mortgage payments you may want to consider filing bankruptcy. Filing Chapter 7 bankruptcy can allow you to keep your home if you are current on your mortgage payments. Filing Chapter 13 bankruptcy can allow you remain in your home and catch up on your mortgage payments if you are currently behind on your mortgage payments. Filing bankruptcy can also stop the foreclosure process. If you are consider filing for bankruptcy in Kansas or Missouri I offer a free initial consultation to discuss your options. Any questions or comments are welcome below.