Housing Information :: Equity in your home doesn’t translate to net worth

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Released: August 26, 2010

Equity in your home doesn’t translate to net worth

Source: Michelle Singletary, Washington Post (Free Registration)

I have my own spin to put on the news that sales of existing homes plunged 27 percent in July: Stop thinking of your home as your cash cow.

In the past few decades, borrowers have heavily leveraged themselves by using their houses to buy the things they’ve wanted-cars, vacations, college educations, better kitchens or bathrooms. That’s one of the advantages of entering into a mortgage for a home: You can still use the home as collateral to borrow more money.

But an estimated one in seven homeowners now has a home worth less than what they owe on their mortgages, and nearly 5 million need their home prices to rebound by 25 percent before they are back above water, according to a “State of the Nation’s Housing” report released this summer by the Joint Center for Housing Studies of Harvard University.

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