Photo: J E Theriot

According to the latest news from the Federal Reserve, households everywhere can now breathe a little easier.

Reason to celebrate
For the first time in six years, homeowners in the U.S. now have more equity in their homes than mortgage debt as shown in the chart below:


Source: St. Louis Federal Reserve. 

After years of dwindling home values and insurmountable debt burdens, the owners' equity in real estate finally eclipsed the total value of mortgages in the third quarter of this year. This marks the first time since the third quarter of 2007 where that was the case. Although the gap between the equity and debt is significantly lower than the peaks seen in 2006, it's just further evidence that the housing market in the U.S. continues to travel along the road to recovery.

The reason for this is twofold: Household equity has increased dramatically after plummeting over the course of a few short years, and the overall debt found in mortgages has steadily declined as the American consumer has become more and more aware of the dangers posed by taking on too much too soon:


Source: St. Louis Federal Reserve. 

The level of household equity in the U.S. peaked at $13.4 trillion in the first quarter of 2006, but then, as the housing crisis raged on, it plummeted by 55% over three years, to $6.1 billion in the first quarter of 2009. The equity in homes fell for 11 of 12 quarters over that time period, after falling only in 11 quarters in the previous 40 years.

Yet, while the total equity of households was essentially flat for three more years, it has grown by more than $3.5 trillion since the fourth quarter of 2011 -- representing an annual growth rate of almost 30% per year -- to $9.7 trillion. This all happened while the value of mortgages in the U.S. has steadily declined from $10.7 trillion in 2008 to $9.4 trillion last quarter.

What it means
There is no denying Great Recession ravaged the U.S. economy, and we are only now steadily moving on the path to recovery. Yet, data points like this can provide a great sense of relief that the foundational bedrock of American consumers -- their homes -- has now officially moved from being a liability to an asset.

This is not only good for the housing market, but also the broader economy, as this will provide tangible relief to countless individuals who have now escaped the seemingly insurmountable burden posed by owing more on their homes than what it is worth.

Certainly, there is a tangible economic benefit from all of this -- but, perhaps more important than anything -- the emotional impact will be far greater.

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