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The Housing Bubble Broke the Middle Class

There are about 105 million households in the U.S. and about 72 million owner-occupied dwellings. Roughly 25 million are owned free and clear, and 48 million have a mortgage. Let's look at homeowner's equity, which stands at 38.5%. Equity is what's left if you sell your house and pay off the mortgage. About 27% of all homeowners (13 million) are underwater, i.e. their house is worth less than their mortgage. This is called negative equity, but in practicality it means zero equity. Since a third of all homes are owned free and clear, then their equity is 100%. Assuming a broadly even distribution of these homes owned without mortgages (most likely, the majority are owned by elderly people who paid off their mortgages), then we can conclude that 33% of total owner's equity resides in these homes owned free and clear. That leaves 5.5% of total equity spread among the 35 million mortgaged homes which are not underwater. Calculated another way: household real estate is worth $16.4 trillion, and there is $10 trillion in outstanding mortgage debt, so total equity is $6.4 trillion. One-third of homes are owned free and clear, so one-third of $16.4 trillion is $5.4 trillion. $6.4 trillion - $5.4 trillion = $1 trillion in equity spread over 35 million homes. That's not much--roughly 1.8% of all household net worth.

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