Declining Values Put Many Who Took Out Home-Equity Loans in a Bind That May Worsen 

NEW YORK — Homeowners started losing hold of their homes years before spiking foreclosures and the housing slump slammed the economy.

Piece by piece, some gave away part of their homes by tapping equity to take cash out to pay for cars, weddings and vacations. Others never owned one brick. During the country’s most recent housing boom, the term “homeowner” threatened to become a misnomer as lenders offered 100 percent or more financing to some buyers.Now, slipping home prices could further erode the value of many Americans’ single largest asset, curbing consumer spending and jeopardizing retirement assets.Thanks in large part to mortgage-related tax deductions and a drumbeat of advice that everyone should own their home, the U.S. homeownership rate rose steadily in recent decades. It peaked at 69.2 percent in 2004 before backing down to 68.2 percent at the end of the third quarter last year, according to the Census Bureau, which has collected the data since 1965.

But that small decline masks a much larger plunge in the amount of equity homeowners hold. Homeowners’ equity fell to an average of 51.7 percent of the value of homes at the end of the second quarter. It was 62 percent at the end of 1990, according to the Federal Reserve, even as the average home value surged 139 percent.

Some economists said the home-equity number will drop below 50 percent by the end of next year, marking the first time homeowners will owe more than they own since the Fed started recording the data, in 1945. The central bank is set to release the third-quarter equity figure Thursday.

Rates on 30-year mortgages dropped for a fourth straight week, reaching the lowest level in nearly four years and raising hopes that low rates will help spur a rebound in the hard-hit housing industry.