HOME EQUITY! IS IT SLIPPING AWAY?
AVERAGE HOME EQUITY PERCENTAGE SLIPS 10% SINCE 2001!
It is often easy to tap home equity. For several years now, most lenders heavily promote lines of credit against the equity in your home. (Equity is defined as the current appraised market value of your home, minus total mortgage indebtedness).
Creative funding programs have allowed many more home buyers will little saved for a down payment to purchase a new home. Some of these overly-creative programs have contributed to the current mortgage market turmoil, and, in turn, a sluggish housing market in many areas of the country, including here in Chicago.
Many use equity loans toward home improvement - in essence, the money goes back into the home. Others have tapped equity to pay high private school and college tuition costs for their children. Some to build or fund a business. Still others, have been less responsible with their equity management - using equity loans and mortgage savings to buy high-end electronic equipment, and vacations. The mentality here - there will always be an opportunity to get the money back when you sell.
Problem is, in recent months, here in Chicago and Chicago Suburbs, anyway, home appreciation has stalled. Those wanting to up-size to a newer, larger house have found their home equity does not provide the nest egg they might have envisioned a few years ago. Add on high equity lines of credit draws, and your dream-home money disappears!
Irresponsible use of home equity can also negatively impact your personal credit. And, if you do not move - you still have to pay the money back, usually interest-only for five to seven years, before the full balance is due. Don't do so, and you will lose your home.
These concerns were triggered in a few paragraphs at the end of Mary Umberger's column today - Umberger is the Real Estate Editor of the Chicago Tribune. According to her report, quoting Federal Reserve Board figures, homeowner equity during the Third Quarter, 2007 sank to a record low level. In the FED's Flow of Funds Report, average home equity dropped to 50.4% in the third quarter, down from 51.1% during the second quarter of 2007. Back in 2001, average home equity was 56% nationwide.
Please, be very careful when tapping the equity in your home!
DEAN MOSS & DEAN'S TEAM CHICAGO
