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Homeowners watching their equity rise

Homeowners are seeing more equity in their residences today. As real estate writer Ken Harney says in a recent column, this ranks as good news.

Surprisingly, it’s news that has gotten lost in the media frenzy following Congress’ last-minute fiscal cliff negotiations. But an increase in home equity can mean good things for the economy: As homeowners see their home equity rise, their confidence should do the same. And confident consumers have always been an important factor when it comes to the country’s economic health.

As Harney writes, homeowners’ equity is rising rather impressively after five years of declines and stagnation. During the final three months of 2011, the total home equity of U.S. homeowners hit a low of $6.45 trillion.

During the next nine months, though, combined homeowners’ equity jumped by about $1.3 trillion to hit $7.71 trillion. That’s a gain of 20 percent from that 2011 low point.

Home equity, of course, is vitally important to homeowners. As Harney explains, it is simply the difference between a home’s market value and the amount of money its owners owe on their mortgage loan.

Here’s a simple example: If a home’s market value stands at $300,000 and its owners owe $200,000 on their mortgage loan, they have $100,000 worth of home equity.

It’s good, then, to see the collective equity of homeowners rise. But the housing down turn has certainly taken its toll on the amount of equity that U.S. homeowners have in their condominiums and single-family homes. Harney points out that in 2007 — the tail end of the nation’s housing boom — the total equity of U.S. homeowners stood at more than $10.2 trillion. This means that from then through late 2011, U.S. homeowners lost about $4 trillion in real estate equity, or almost 40%.

That puts into perspective just how devastating the housing crisis was, and how dramatically it cut into the wealth of U.S. residents.

The good news? Harney writes that the $1.3 trillion turnaround during the first three quarters of 2012 represented the first sustained rebound in housing prices in a long time in many housing markets.

The bad news? The Chicago housing market hasn’t seen the housing price increases that we’d all like to see.

Let’s hope, though, that a rebound in local housing prices isn’t too far off. Harney’s column can provide us with at least a bit of hope.

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