Final answer:
Owner's equity in a house is calculated by subtracting outstanding loan balances from the current market value of the house. It represents a significant portion of an individual's financial assets. The total value of all home equity held by U.S. households is substantial and important for determining net worth.
Step-by-step explanation:
An individual's personal assets and liabilities are often calculated to determine their net worth or financial position. In the case of tangible assets like housing, the owner's equity is a significant component of their financial asset portfolio. To calculate the equity of a house, one would subtract the outstanding balance of any bank loans from the current market value of the house. For example, if someone owns a house valued at $175,742 and has a mortgage of $76,765, their home equity would be $98,977. Similarly, if a car is valued at $44,346 with an associated truck loan of $66,408, this indicates negative equity in the vehicle.
Home equity is often the single greatest financial asset for many households, and as of the middle of 2021, the total value of all home equity held by U.S. households was $23.6 trillion. It is important to account for both assets and liabilities, such as credit card balances and loans, when determining an individual's overall financial health. For the carpenter in the question, the net worth would be evaluated by summing the values of all assets (home, work equipment, car, investments) and then deducting the sum of all liabilities (mortgage, credit card balance, truck loan).