House party
American homeowners are finally returning to positive equity
By S.V.P. and L.P.
American homeowners are finally returning to positive equity
THE calamitous financial situation of "negative equity" is when the mortgage on your house dwarves the value of the house itself. That has been the situation of American homeowners in aggregate since late 2007, according to "flow of funds" data from the US Federal Reserve. But this may be coming to an end, after 23 quarters. Housing equity has shot up in recent months, as prices have started to recover nationwide. And mortgage debt has declined steadily as households have deleveraged, often because banks have yanked their credit lines.
This crossover—flagged by Stephanie de Torquat at Lombard Odier, a bank—is good news for the economy. Net housing equity is a key part of the "wealth effect": as people feel richer, they spend more, spurring growth in a virtuous cycle. Yet one thing that could send the curve scurrying back down is an unruly reaction to the end of ultra-loose monetary policy in America, called "tapering". Mortgage debt would fall as borrowing money became more expensive. But house prices could tumble even more, sending homeowners back into negative equity.
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