One of the major reasons why the US had a hard time recovering from the 2008 recession is the giant housing-debt hangover. However, as 2015 comes to a close, new data from Federal Reserve show that American homeowners are finally recovering from it.
The encouraging data revealed that as of September, the equity of US homeowners stood at $12.4 trillion, or 56.7 percent of home values. This is the highest level since the housing bust began in mid-2006. Additionally, data provider Care Logic also discovered that "underwater" homeowners (homeowners who owe more than their homes were worth) have fallen to less than 9 percent.
This milestone is attributed to a combination of mortgage defaults, modifications, old-fashioned thrift and a multi-year rebound in house prices.
Looking at the figures of early 2009, this is a significant improvement. Six years ago, the housing bust caused property values to tank while mortgage debt remained unchanged. In early 2009, the equity of US homeowners was at an all-time low of $6.2 trillion. This amount is only 37 percent of their home value. Likewise, according to US financial accounts published by Fed. Worse, one in four American homeowners were "underwater."
Naturally, homeowners who are in such position would not have enough resources to spend on other commodities. Economists see this as an explanation for the slowdown of the economy in the past several years. The housing bust caused a weak market demand hence holding back the economy.
In previous reports, Bloomberg View urged the US government to be more aggressive in reducing mortgage principal. Such action could have gotten homeowners to this point much earlier. But still, it is better late than never.
Now, the only one question remains. Will the economy gain momentum once more now that US homeowners have regained their housing wealth? What do you think?
