123ArticleOnline Logo
Welcome to 123ArticleOnline.com!
ALL >> Real-Estate-and-Foreclosure >> View Article

Home Equity - What Is It?

Profile Picture
By Author: Lawrence Roberts
Total Articles: 4762
Comment this article
Facebook ShareTwitter ShareGoogle+ ShareTwitter Share

Many people who purchase real estate have no idea what equity is, what creates it, what destroys it, and what to do with it. People who purchase real estate use the phrase "building equity" to describe the overall increase in equity over time. However, it is important to look at the factors which either create or destroy equity to see how market conditions and financing terms impact this all-important feature of real estate.

In simple accounting terms, equity is the difference between how much something is worth and how much money is owed on it (Equity = Assets, Liabilities). For purposes of illustration, equity can be broken down into several component parts:

* Initial Equity,
* Financing Equity,
* Inflation Equity, and
* Speculative Equity.

Initial Equity is the amount of money a purchaser puts down to acquire the property. Financing Equity is the gain or loss of total equity based on the decrease or increase in loan balance over time. Inflation Equity is the increase in resale value due to the effect of inflation. This kind of appreciation is the "inflation hedge" that provides ...
... the primary financial benefit to home ownership. Finally, there is Speculative Equity. This is the fluctuation in equity caused by speculative activities in a real estate market. This can cause wild swings in equity both up and down.

If life's circumstances or careful analysis and timing cause a sale at the peak of a speculative mania, the windfall can be dramatic. Of course, it can go the other way as well. If a house is purchased at its fundamental valuation where the cost of ownership is equal to the cost of rental using a conventionally amortized mortgage with a downpayment, the amount of owner's equity is the combination of the above factors.

The Great Housing Bubble saw many individual properties obtain huge amounts of speculative equity. During this unprecedented rise in real estate prices, there was a surprising decline in aggregate home equity across the country. People did not manage their equity well. Many treated their houses like an ATM machine that provided nearly endless free money. Unfortunately, most of these people lost their homes in foreclosure.
About Author:
Lawrence Roberts is the author of The Great Housing Bubble: Why Did House Prices Fall?
Learn more and get FREE eBooks at: http://www.thegreathousingbubble.com/
Read the author's daily dispatches at The Irvine Housing Blog: http://www.irvinehousingblog.com/ Visit Home Equity - What is It?.

Total Views: 198Word Count: 403See All articles From Author

Add Comment

Real Estate and Foreclosure Articles

1. Industrial Property In Neemrana: Unlock Growth Potential
Author: Shankar Estate

2. Eldeco Fairway Reserve Sector 80, Gurgaon: A Lifestyle Beyond Compare
Author: Eldeco Group

3. Top 7 Reasons To Buy Flats In Kochi’s Prime Locations
Author: varma

4. Residential Type Property
Author: Ravinder Kumar

5. Property Flat Rent In Gillco Parkhill
Author: Ravinder Kumar

6. Property Area Sector 102
Author: Ravinder Kumar

7. Property In Jubilee Parklane
Author: Ravinder Kumar

8. Pre-launch Type Property
Author: Ravinder Kumar

9. Villas Property In Sector 110
Author: Ravinder Kumar

10. Property In Jubilee Elvira
Author: Ravinder Kumar

11. The Best And Top Selling Agents In My Area
Author: Haupt Realty

12. What Are The Homes For Sale In Canmore?
Author: Haupt Realty

13. Condos For Sale In Edmonton Alberta And Its Most Hidden Benefits
Author: Haupt Realty

14. Exploring The Best Acreages For Sale Parkland County: Your Guide To Rural Living
Author: Haupt Realty

15. Redefining High-end Living In Thane
Author: Godrej Ascend

Login To Account
Login Email:
Password:
Forgot Password?
New User?
Sign Up Newsletter
Email Address: