Blogger CalculatedRisk took a look at the Federal Reserve's latest estimate of the equity Americans have in their homes and found it overly optimistic on its face. And not by a little.

The Fed’s quarterly tally of U.S. households’ aggregate balance sheet, issued Thursday, as usual included an estimate of homeowner equity -- the market value of houses minus mortgage debt owed.

In the quarter ended March 31, the Fed’s data put net equity at a record low of 41.4% of market value, down from 42.9% the previous quarter and down dramatically from 58.5% at the end of 2005.

Still, a 41.4% equity stake, after the unprecedented plunge in housing prices, might seem like a decent average cushion against more homeowners deciding to just walk away from a declining investment.

But the Fed’s figure, as CalculatedRisk notes, is simple math -- too simple. The Fed subtracts estimated household mortgage debt ($10.46 trillion) from the total estimated market value of homes ($17.87 trillion) to get $7.4 trillion in equity.

That market-value total of $17.87 trillion, however, includes the estimated 32% of homes that have no mortgage debt at all (i.e., those owners, most likely older folks who've been in their homes for decades, have 100% equity).

The more telling number, CR notes, is the remaining equity of people who have mortgages.

Crunching Census Bureau data, CR estimates that the average net equity of mortgage-encumbered homes is just 20.4%, or less than half the overall equity cushion as figured by the Fed. Go here for the full post explaining the calculations.

Of course, any aggregate number is going to include people who still have a lot of equity and the millions of others who are underwater in their homes. But the 20.4% estimated equity average for mortgaged homes is a much thinner cushion than the Fed's overall equity figure suggests.

-- Tom Petruno

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