Negative Equity Key to Housing Roller Coaster?
May 27, 2014
One reason for the sluggish housing recovery: home owners unable to sell their homes because they don't have enough equity to do so yet, The Wall Street Journal reports.
Nearly 10 million U.S. households — or about 18 percent of home owners with a mortgage — are underwater, meaning their home is worth less than their mortgage. Home prices are rising, and the number of underwater home owners is declining, but some are still feeling stuck.
"Most move-up home owners typically use their home equity to cover broker fees, closing costs, and a down payment for their next home," The Wall Street Journal reports. "Without those funds, many home owners can't sell."
Some housing analysts say that understanding negative equity is key to understanding a lot of the distortions occurring in the housing market currently.
The picture has been gradually improving, however. While the number of underwater home owners remains high, some reports show more home owners regaining equity. About 4 million homes returned to positive equity in 2013, resulting in a total of 42.7 million homes with a mortgage that now have equity, according to a CoreLogic report.
"The plight of the underwater borrower has improved dramatically since negative equity peaked in December 2009 when more than 12 million mortgaged home owners were underwater," says Mark Fleming, chief economist for CoreLogic. "Over the past four years, more than 5.5 million home owners have regained equity, reducing their risk of foreclosure and unlocking pent-up supply in the housing market."
Source: "Negative Home Equity Impedes Housing Recovery," The Wall Street Journal (May 24, 2014) and "CoreLogic: 4 Million Home Owners Back Above Water in 2013," HousingWire (March 6, 2014)
Updated: June 22, 2018