For the first time since the Federal Reserve started tracking the data in 1945, the amount of debt tied up in American homes now exceeds the equity homeowners have built. The Fed reported this week that homeowner equity slipped below 50 percent in the second quarter of last year and fell to just below 48 percent in the fourth quarter.
In short, more expensive home prices have led to more leveraged home owners. More leveraged home owners have led to more foreclosures. More foreclosures are leading to lower prices in many areas, which leads to more foreclosures. The cycle only stops when the market balance is restored.
What is the equity position for equilibrium in our market? Is it 50%? Have we reached it? Have we passed it? Given the lack of appreciation in our market over the past few years, I would guess we are on the more leveraged end of the scale. That would suggest that banks will continue to work aggressively to price Colorado foreclosures to sell quickly.
