Saturday, June 28, 2008

Home Equity Percentage Has Steadily Declined Since WWII

InvestmentNews shows that home equity as a percentage of value has steadily declined since World War II.

I do not believe this is a problem as long as people aren't over-paying for homes. However, the problem this decade has been that people were buying homes for more than their intrinsic value. Financial leverage can magnify your gains if you buy at sensible prices, but it can also magnify your losses when you pay too much for real estate.


1 comment:

  1. I think increasing leverage is always a risk. Leverage is what kills companies and although we are all trained to "optimize" leverage to boost ROE's there is always and everywhere the problem of fat tails and the fact that we always underestimate how fat the tails are....