Many Homeowners Owe More Than Twice Their Homes’ Value
By Natalie Wise
Despite many marked improvements in the housing market across the country, a large number still owe more than their homes are worth. In the case of 820,000 unlucky homeowners, they owe more than twice the value of their homes.
This situation, termed “negative equity,” meaning the home holds no equity and more is owed that it is worth, is popularly referred to as being “underwater.” At peak negative equity, 31.4 percent of mortgage holders were sinking to some level in the first quarter of 2012.
As of the fourth quarter of 2015, things have certainly improved, with only 13.1 percent of mortgage holders underwater, according to Zillow. But that percentage still represents 6.3 million homeowners who owe more than their homes are worth. That’s a decline of 27 percent from 2014, when 8.7 million homeowners were underwater.
Of those 6.3 million, 13 percent of them owe more than twice what their homes are worth. That is 820,000 borrowers who are nearly drowning in their mortgages.
In the Tampa Bay area, 16 percent of homeowners were underwater as of the third quarter. Home values in the area have risen 9.2 percent over the past year, to a median of $163,000 in February, and are expected to rise 2.4 percent over the next year. However, that is still far below the peak median value of $218,000 in 2006.
It is tough to reverse this trend and get out for many borrowers. They are stuck in their homes with the rising debt tides, unable to financially untangle themselves easily. Selling makes a large loss almost inevitable, and refinancing is rarely an option.
“It may make sense to wait it out longer until home values rise,” said Gerri Detweiler, director of consumer education for Credit.com. But Zillow Group’s Chief Economist Stan Humphries said this is risky, too. “It’s likely they may not regain equity for up to a decade or more at these rates.”
Renting out the property is another option that is attractive to some borrowers. It comes with its own set of difficulties, the least of which may be where to live while you rent the property. Unfortunately, no single option is a “fix-all” for everyone.
Detweiler highly recommends considering all options and seeking legal advice before filing bankruptcy. The implications of bankruptcy are staggering and long-lasting, potentially including wage garnishments, unexpected taxes and seizure of bank accounts.
While things have certainly improved and continue to, it will be a long swim to the surface for hundreds of thousands of borrowers.