## Thursday, September 15, 2011

### How Do We Make Sense of These Numbers?

I read this in the newspaper today:

The average interest rate for 30-year fixed-rate mortgages dropped to 4.17%, eclipsing the previous low of 4.21% in October 2010 ... Refinancing activity remains lacklustre given the backdrop of tighter credit standards at banks and the fact that so many homeowners owe more on their mortgages than the value of their houses ... However, about 53% of borrowers with equity in their homes (20 million homeowners) are paying more than 5.1% on their mortgages; about 36% are paying more than 5.5%; about 17% are paying more than 6%.

These are so many percentages closely squeezed into one paragraph that it's almost impossible to understand what's going on. Shall we see what an elementary math education can do to make sense of it all?  We need more information.  I found a different article published 2 days ago in another paper - and more percentages:

About one-third of the country's 76 million owner-occupied homes have no mortgage because they were purchased for cash or their loans have been paid off; about 10.88 million homes, or 22.5% of those with a mortgage, were “underwater” and 2.2 million or 5% of those with mortgages had less than 5% equity, bringing the total of under or near-under to 27.5% of total mortgaged homes.

I think we have enough data to sort things out a bit. 76 million homes; one-third with no loans. Let's display this data clearly. I'll make sure the numbers line up and add up:

A. 26.0 million are paid off
B. 50.0 million with a mortgage
B1. 11.0 million are underwater (mortgage is greater than the house is worth) and
B2.  2.5 million are near or on the line (less than 5% equity)
B3. 36.5 million have equity (mortgage is at least 10% less than the house's value)
Some don't need mortgages (A), some can't get them (B1 & B2), and some could benefit from them (B3). Why aren't the B3 people benefiting from lower interest rates? Why aren't loan officers chasing them?

Let's plot this out to visually grasp it!

Maybe I have lost all of you.

This is darn hard work. Brain, a calculator, and some lines on the screen. No fancy spreadsheets doing this work for us today. But losing your home is even harder to bear. And so is having your life savings lost by a bank that loans money recklessly.

Make sure your kids are paying attention in their math classes!