Thursday, December 06, 2007

Fed: Existing Household Real Estate Assets Decline $67 Billion in Q3

by Bill McBride on 12/06/2007 07:16:00 PM

Here is some more data from the Fed's Flow of Funds report.

The Fed report shows that household real estate assets increased from $20.94 Trillion in Q2 to $20.99 Trillion in Q3. However, when we subtract out new single family structure investment and residential improvement, the value of existing household real estate assets declined by $67 Billion.

The simple math: Increase in household assets: $20,991.18 Billion minus $20,937.62 Billion equals $53.56 Billion. Now subtract investment in new single family structures ($297.2 Billion Seasonally Adjusted Annual Rate) and improvements ($185.8 Billion SAAR). Note: to make it simple, divide the SAAR by 4.

Finally $53.56B minus $297.2B/4 minus $185.8B/4 equals a decline in existing assets of $67.2B. This was a quarterly price decline of about 0.3%, about the same as the OFHEO House Price index decline.

As mentioned earlier, household equity declined by $128 Billion in Q3.

Household debt increased by $182.1 Billion in Q3 (down from $213.6B in Q2, and up slightly from $181.48B in Q1 2007). The mortgage equity withdrawal numbers will probably still be fairly strong in Q3.

Household percent equity was at an all time low of 50.4%.

Household Percent Equity Click on graph for larger image.

This graph shows homeowner percent equity since 1954. Even though prices have risen dramatically in recent years, the percent homeowner equity has fallen significantly (because of mortgage equity extraction 'MEW'). With prices now falling - and expected to continue to fall - the percent homeowner equity will probably decline rapidly in the coming quarters.

Also note that this percent equity includes all homeowners. Based on the methodology in this post, aggregate percent equity for households with a mortgage has fallen to 33% from 36% at the end of 2006.

Household Percent EquityThe second graph shows household real estate assets and mortgage debt as a percent of GDP. Household assets as a percent of GDP is now declining, although mortgage debt as a percent of GDP still increased in Q3.

If Goldman Sachs and Moody's are correct and house prices fall 15% nationally (30% in some areas), the value of existing household real estate assets will fall by $3 Trillion over the next few years.

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