by Calculated Risk on 6/11/2009 05:11:00 PM

One of the headlines from the Fed's Flow of Funds report this morning was that household percent equity had fallen to a record low 41.4%.

Click on graph for larger image in new window.

This graph shows homeowner percent equity since 1952.

This is a simple calculation: divide home mortgages ($10,464 billion) by household real estate assets ($17,870 billion) gives us the percent mortgage debt (58.6%). Subtract from one gives us the percent homeowner equity (41.4%).

But what does this tell us?

What we really want to know is the percent equity for homeowners with mortgages. According to the Census Bureau, 31.6% of all U.S. owner occupied homes had no mortgage in 2007 (most recent data). These homeowners tend to be older, or more risk adverse, and few of them will probably borrow from their home equity.

You can't do a direct subtraction because the value of these paid-off homes is, on average, lower than the mortgaged 68.4%. But we can construct a model based on data from the 2007 American Community Survey.

Note: See data at bottom of this post.

Click on graph for larger image in new window.

This graph shows the distribution of U.S. households by the value of their home, with and without a mortgage. This data is for 2007.

By using the mid-points of each range, and solving for the price of the highest range to match the then Fed's estimate of household real estate assets at the end of 2007: $20.5 Trillion, we can estimate the total dollar value of houses with and without mortgages.

Using this method, the total value of U.S. houses, at the end of 2007, with mortgages was $15.1 Trillion or 73.6% of the total. The value of houses without mortgages was $5.4 Trillion or 26.4% of the total U.S. household real estate.

Assuming 73.6% of current total assets is for households with mortgages (so $13.2 trillion of $17.87 trillion total), and since all of the mortgage debt ($10.464 trillion) is from the households with mortgages, these homes have an average of 20.4% equity. It's important to remember this includes some homes with 90% equity, and millions of homes with zero or negative equity.

Data from 2007 American Community Survey:

	United States
	Estimate	Margin of Error
Total:	75,515,104	+/-227,236
With a mortgage:	51,615,003	+/-152,731
Less than $50,000	2,037,849	+/-21,748
$50,000 to $99,999	6,443,236	+/-45,023
$100,000 to $149,999	8,023,775	+/-48,465
$150,000 to $199,999	7,318,809	+/-43,489
$200,000 to $299,999	9,538,216	+/-46,625
$300,000 to $499,999	10,196,919	+/-44,000
$500,000 or more	8,056,199	+/-35,865
Not mortgaged:	23,900,101	+/-91,776
Less than $50,000	3,577,700	+/-30,890
$50,000 to $99,999	4,665,031	+/-35,455
$100,000 to $149,999	3,765,972	+/-28,355
$150,000 to $199,999	2,968,680	+/-24,691
$200,000 to $299,999	3,227,661	+/-23,430
$300,000 to $499,999	3,080,889	+/-21,963
$500,000 or more	2,614,168	+/-17,619