Negative Equity Still Affecting the Housing Market


The negative home equity rate is falling steadily, but it is still high enough to create issues in the housing market, especially for first-time home buyers. It is one of the major obstacles preventing buyers from accessing affordable housing. If it continues to fall in the coming months and years, its negative impact may be reduced effectively.

During the first quarter of 2014, the negative equity rate was 18.8%. This marked a 6.6% decrease on an annual basis and a 0.6% decrease on a quarterly basis. The rate is expected to reach a level of around 17% in the first quarter of 2015. The positive trend, however, may not have the same positive effect on all sectors of the housing market.

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Even though the average negative equity rate was 18.8%, the same rate for the houses in the bottom third of home values was 30.2%. This figure indicates that almost a third of the most affordable homes were underwater. For comparison, among the homes in the middle third only 18.1% were underwater. The negative equity rate in the top third was just 10.7%.

The owners of the affordable homes which are underwater are unable to sell them. This is because the proceeds from the sale will be insufficient for covering their expenses. They will not have enough money left to place as a down payment for the purchase of a new house. These homeowners have no choice but to stay in their current properties and to keep paying their mortgage loans.

As a result, the inventory in the most affordable segment of the housing market is shrinking. Coupled with the tighter credit standards, this leaves many prospect first-time home buyers out of the market. This trend will most likely remain despite the projected decrease in the negative equity rate for this year.

The housing market has to reach a higher growth rate for more homes to become accessible to first-time home buyers.



Christian Calvin mortgage Christian is a contributing writer for He is a graduate from the University of Tennessee with a degree in Communications and a concentration in Broadcasting. Christian has served as vice-president for a privately-held company for more than 20 years. Additionally, he has also applied his writing and business knowledge to various websites with a focus on business and sports news . . . both of which are passions. Christian enjoys playing golf and spending time with his family and friends.


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