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Housing Equity Serves as Good Measure of Economy

published on May 10, 2010

Housing Equity Serves as Good Measure of Economy

Housing equity has been a major area of concern over the past several months for those who own homes as well as for those who do not. After all, the state of the housing market has a significant impact on the overall well-being of the country’s economy. Yet, despite the fact that many people have been throwing the words "housing equity" around so often lately, many people still do not fully understand what equity is or how the equity situation looks in their local area or throughout the country.

What is Housing Equity?

Put simply, housing equity is the wealth of a particular area as determined by its total assets minus its total liabilities. Examples of assets include bank accounts and homes, while examples of liabilities include car loans, mortgages, credit cards and other types of debt. As such, housing equity can be affected by a number of different things. Some of these include:

• Acquiring new debt
• Investment
• Ownership of assets
• Paying down debt
• Valuation

Analyzing the housing equity of local markets and of the country as a whole is essential because wealth has an impact on how consumers make decisions regarding how much they save and buy, as well as how they choose to spend their leisure time and the types of jobs they choose to pursue. In other words, housing equity affects nearly every aspect of the economy.

Taking a Closer Look at the US Market

According to the S&P 500 Index, 62.5% of homeowners and 26% of renters had either direct or indirect stock holdings when the market started to take a downward spiral in 2008. To make matters worse, home prices declined in 2008 and 2009, which also had a negative impact on the overall net worth of homeowners throughout the country. On the plus side, only 6-7% of homes that are occupied by their owners are actually sold in any given year. Therefore, the change in equity doesn’t directly impact those homeowners who have not sold their homes.

Exploring Equity in Madison, Wisconsin

As should be expected when examining the housing market, the picture isn’t the same from one local market to the next. Furthermore, some local markets have weathered the storm more favorably than the national average while others have lagged behind. In Madison, Wisconsin, for example, the National Association of Realtors reports that, while the median price of homes in the area did fall from 2008 to 2009, it wasn’t as drastic of a drop as that which was experienced on the national level. On the other hand, the NAR further reports that homeowners who purchased their homes in 2004 have an average of $26,179 in homeowner equity, while those who purchased their homes 20 years ago have $163,117 in equity.

The bottom line is that, when it comes to measuring the health of our country’s economy as well as the economy of a specific locality, examining housing equity is a must. Therefore, it will be interesting to see the estimates for 2009 that are expected to be available later this year. If all goes well, we will see that things are moving in a positive direction.

Jolenta Averill is a Madison Realtor and the principle broker at Lake & City Homes Realty where she specializes in Madison homes and Middleton homes for sale. Learn more about Madison by visiting Jolenta’s Madison WI real estate website.

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