Rising Home Equity Bringing More Owners Out of ‘Real Estate Purgatory’

There was some very encouraging news from the Federal Reserve last week: home equity in the U.S., after taking an enormous hit during the last housing crash, has risen to levels not seen since 2007. It’s been a long time coming, but many home owners have finally emerged from what the Washington Post described as “real estate purgatory.”

Home equity, which is the difference between the value of a home and its remaining debt, is a key component of the real estate market and the larger economy as well. As the Post points out, greater equity provides a “wealth effect” because it frees up home owners to spend on more goods and services.

According to the Fed, home equity in the U.S. increased by 7.9% in the first quarter of 2014 to $10.8 trillion. That’s the highest amount since late 2007, but it’s also worth noting that it’s below the peak of $13.4 trillion that was reached in 2006 during the height of the housing bubble.

The fact home equity is surging upwards is excellent news on many fronts, according to economists and real estate experts. One of the biggest draws is that with fewer and fewer homes being “underwater,” it will likely result in more supply and greater demand for housing. Lack of supply has has been a drag throughout the current housing rebound, but with home equity dynamics improving that could soon be changing.

The Washington Post also pointed out the California has had particularly strong growth in home equity in recent months. Thanks largely to sharp increases in home values throughout the state, only about 11% of homes in California are in negative equity.