Despite unprecedented economic prosperity, the average amount of equity owners have in their homes has declined over the last 10 years, according to a new report.

The fall off isn't much, only about $1,500, from $91,000 in 1989 to $89,500 last year. But it has the Consumer Federation of America worried because home equity is a large part of the typical household's net worth.

The decline means many home owners have accumulated little or no wealth over the decade, making them "no better off" than renters, said CFA Executive Vice President Stephen Brobeck.

One reason for the drop is the increase in low-downpayment lending. During the 10-year period, the study by Frank Nothaft, an economist with Freddie Mac, on behalf of the CFA found that the ratio of mortgage debt outstanding to the value of all houses increased from 31 percent to 34 percent.

Another is the increase in borrowing by owners against the equity in their homes. In the 1989-'99 period, the proportion of owners carrying home equity debt rose from 58 percent to 61, according to the study.

CFA doesn't advocate curtailing either of these trends. Indeed, Brobeck said the boost in home ownership that has been fueled in large part by first-time buyers with little cash of their own is "of paramount importance to our society."

"Low-downpayment lending has put people into homes who wouldn't be there otherwise," he said. "And their financial risk is limited to mostly their closing costs, so it is not particularly dangerous."

But the consumer advocate warned that owners should exercise care when borrowing against their homes. "If people were more cautious," he said, "these problems would be self-correcting."

Specifically, people should use their equity only for home improvements, education, medical needs or business opportunities, he said.

There is nothing wrong with using equity to pay off more expensive consumer debt, as long as owners who do so don't take on more debt, he also said. "Unfortunately," he added, "most continue to borrow."

On a positive note, the study also found that home equity increased for lower-income and African American households. During the 10-year period, equity rose an average of 6 percent, from $76,000 to $80,400, for owners with incomes below their area median, and 12 percent, from $53,400 to $59,700, for African Americans.

At the same time, though, equity declined for owners under age 55. Households headed by someone younger than 45 had 14 percent less equity than their counterparts a decade ago.

Stressing that "home ownership is not just (about) getting into a home, it's also (about) paying off the mortgage and building home equity," Brobeck said a "number of young home owners are not as aware of that as they should be. And many are heading for serious financial trouble."

Published: November 20, 2000

Use of this article without permission is a violation of federal copyright laws.

When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.