If you have a mortgage and you owe more than your home is worth you are underwater. According to the realty website Zillow.com 38.6 percent of all single-family detached homes in the Chicago area were underwater on their mortgage in December, an all-time high, far outpacing national trends (27 percent). Atlanta tops the nation in drowning home mortgage owners with almost 50 percent of them in negative equity.
The more housing prices fall the more underwater mortgages. The people who are most exposed as the property prices fall are those who took full advantage of the 100 percent mortgage deals that were commonplace in the peak of the housing boom.
Owing your bank more than your house is worth makes it very difficult to move, up or down, since you are unlikely to be able to transfer your existing loan from one home to another. Those who are underwater and on variable rates are likely in some stage of foreclosure or struggling to overcome the subsequent mortgage payment shocks. Rising unemployment only adds to the tide of negative equity.
Those who prioritise paying down their mortgage might be better served as one of the best investments might be getting rid of debt when property values are in decline. Negative equity also creates a headache for those seeking to re-mortgage but that’s not necessarily a bad thing since decreasing home equity by remortgaging or second-mortgaging can lead to trouble.
Sit tight, relax. Punxsutawney Phil came out during the Blizzard of ’11 and still saw his shadow. Better days are ahead.
H/T Craig Roman
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