Homeowner situation not as bleak as reported

USA Today (Society for the Advancement of Education), May, 2008

Americans may own a larger share of their homes than is suggested by a Federal Reserve report, according to a nationwide survey by Ohio State University, Columbus. In its quarterly report, the Federal Reserve says that, in 2007, Americans' percentage of equity in their homes fell below 50% for the first time since 1945, to 47.9%. For most people, that means the bank or mortgage company owns a greater share of their home than they do. However, statistics from Ohio State show that homeowners have about 70% equity in their homes.

The discrepancy may be because the Fed report fails to account for homeowners who have paid for their home in full and thus have no mortgage, notes Randall Olsen, director of the Center for Human Resource Research. "Things are rough on the housing front, but they aren't as bad as some of these stories would lead us to believe. While many homeowners are hurting and the economy is definitely vulnerable, the sky is not falling."

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The survey reveals other hopeful economic news: the percentage of Americans who owed money on their credit cards, or who used payday loans, virtually was unchanged from 2006 to 2007. Moreover, it shows that about 75% of Americans own, or are buying, their home--a number similar to 2006. However, 40% of households do not have a mortgage on their home and, for those who do, the average is $138,000. The average home in the survey is worth almost $283,000.

Equity is not the only measure of the stability of the housing market, Olsen explains. A traditional benchmark used by lenders to determine if a mortgage is well secured is whether the amount owing on the mortgage is less than 80% of the house value. This is called the "loan-to-value ratio." Consumer Finance Monthly data shows that 82% of homeowners with a mortgage have a loan-to-value ratio under 80%.