WASHINGTON — With all the grim news about underwater mortgages and rising foreclosures, it might be surprising to learn that a bellwether measure of the national housing market — home-owners' equity stakes — has been on the rebound.
The Federal Reserve's latest “flow of funds” report on the nation's finances found that homeowners' net equity holdings have increased from $5.9 trillion during the first quarter of 2009 — the hard bottom of the recession cycle — to just under $7 trillion through the second quarter of 2010.
If home equity, as measured by the economists at the Fed, has rebounded so vigorously, how come most homeowners' personal equity holdings haven't done anywhere near as well?
The Fed makes its basic calculation the same way most homeowners would: Subtract total mortgage debt from the estimated market value of the real estate.
The remainder — if there is one — is the net equity.
The Fed has access to the mortgage debt holdings of banks and nonbank lenders and uses a variety of governmental and private real estate data sources to arrive at quarterly home values across the country.
But the types of data that flow into those numbers include variables a homeowner might not think about when tallying equity.
Calvin Schnure, a former Fed economist who worked on “flow of funds” reports and now is the director of economic analysis at Freddie Mac, said the national mortgage debt statistic is pushed downward both by principal reductions and foreclosures by lenders — signs of homeowner distress — and by faster paydowns of mortgage debt balances.
Each of these trends has been strongly under way during the past year.
Mr. Schnure noted in an interview that 22 percent of all refinancings of Freddie Mac loans, homeowners brought money to reduce total mortgage burden.
American consumers have been cutting debt across the board since the onset of the recession, said Mr. Schnure.
He said home price appreciation has pushed up homeowner equity holdings — accounting for roughly one-third of the $1 trillion gain in the Fed's calculations. Some of the increase is also attributable to home improvements and remodeling investments.
Doug Duncan, chief economist at Fannie Mae and a longtime analyst of real estate and mortgage trends, said still another factor pushing up equity totals is the recent growth of “all-cash sales where, of course, equity is always 100 percent.”
On top of that, about one-third of all home-owners have paid off all prior mortgage debt.
None of this offers much solace to people who still owe more on their houses than the property is worth or who lost their homes to foreclosure. But for just about everybody else, the latest Fed numbers suggest that the equity crash probably is over and that a rebuilding — with healthier credit habits — is under way.