WASHINGTON --- Falling real estate prices are eating away at home equity. The percentage of their homes that Americans own is near its lowest point since World War II, the Federal Reserve said Thursday. The average homeowner now has 38 percent equity, down from 61 percent a decade ago.
The latest snapshot of the housing market came as mortgage rates hit a new low for the year, falling below 4.5 percent for a 30-year fixed loan. But even alluring rates have failed to deliver any lift to the housing industry.
The Fed report is based on data from the first quarter of this year. Another report last week found home prices in big cities have fallen to 2002 levels.
Normally, home equity rises as you pay off the mortgage. But home values have fallen dramatically since the bubble in prices burst in 2006. So many homeowners are losing equity even though the outstanding balance on the loan is getting smaller.
Nicole Rosen's home in tiny Spanaway, Wash., has lost $150,000 in value since she paid $275,000 for it in 2006. She has battled mortgage lenders in court for two years to stay out of foreclosure.
Home equity is important for the economy because it has a lot to do with how wealthy people feel. If they feel swamped by a mortgage loan, they're less likely to spend freely on other things.
There are 74.5 million homeowners in the United States. An estimated 60 percent have a mortgage. The rest have either paid off the loan or bought with cash.
Of the people who have mortgages, 23 percent are "under water," meaning they owe more on the mortgage than their home is worth, according to the private real estate research firm CoreLogic. An additional 5 percent are nearing that point.
Fixed mortgage rates average 4.49 percent, low by historical standards, and have fallen for eight consecutive weeks.
And foreclosures keep hammering the housing market. On Thursday, the Obama administration said the three largest U.S. lenders -- Wells Fargo, Bank of America and JPMorgan Chase -- haven't helped enough people lower their mortgage payments to stay in their homes.
Foreclosures have economic ripples: Homes in foreclosure sell at a 20 percent discount on average, and those discounts erode prices throughout a neighborhood.
Home prices are expected to keep falling until the number of foreclosures for sale is reduced, companies start hiring in greater force, banks ease lending rules and more people think it makes financial sense again to buy a house. In some areas, that could take years.