Last Week, CoreLogic released their Negative Equity Report for the fourth quarter of 2011. The report delivered some important news. Let’s go over the key findings in the report.
What Is Negative Equity?
When a home’s current value is less than the existing mortgage on that home, the house is said to be in a ‘negative equity’ situation (other terms used to describe this situation are ‘underwater’ and ‘upside down’).
How Many Homes Are in a Negative Equity Situation?
The CoreLogic report stated:
“11.1 million, or 22.8 percent, of all residential properties with a mortgage were in negative equity at the end of the fourth quarter of 2011. This is up from 10.7 million properties, 22.1 percent, in the third quarter of 2011.”
This is important because studies show that people in a negative equity situation are more likely to default on their mortgage payments than people who have equity in their homes.
How Many Homes Are Approaching Negative Equity?
According to the report:
“An additional 2.5 million borrowers had less than five percent equity, referred to as near-negative equity, in the fourth quarter.”
Many experts believe that housing prices will soften in the first half of 2012. That will cause a percentage of these homes to fall ‘underwater’.
Bottom Line
History has shown that a percentage of those 2 million+ homes will enter the distressed property category as some families decide it no longer makes sense to pay their mortgage. Any increase in short sales or foreclosures will impact prices in an area