The Great Oxymoron: Negative Equity

Posted on 20. Apr, 2006 by in Real Estate

This one comes from my good friend Adam, who is as suprised as I am at the latest financial trend – the increase in negative equity.
Yes, it seems to be an oxymoron doesn’t it? I mean, isn’t equity supposed to be a positive thing? If you’ve gotten an adjustable-rate mortgage (ARM) in the last 5 years and are looking to refinance you might find yourself in the “negative equity” boat as well. Negative equity occurs when the amount you owe on your home becomes more than the home is worth, or can sell for. And as the real estate bubble is slowly deflating, many people are realizing those zero-down mortgages are coming back to bite them. They had once depended on their home’s equity to bail them out if they ever needed to, but now even selling your home isn’t enough to pay back the mortgage. As MSN Money reports, many of these homeowners may soon face a “can’t pay, can’t sell, can’t refi” situation that could lead them to lose their homes.

Here are some startling facts regarding negative equity:

  • Nearly one in 10 households with a mortgage had zero or negative equity in their homes as of September 2005, according to First American Real Estate Solutions, an arm of title-insurance company First American Corp. The study of 26 million homes in 36 states and the District of Columbia found that one in 20 home borrowers was upside-down by 10% or more.
  • The situation is even grimmer for recent borrowers. Of those who bought or refinanced homes in 2005, 29% had zero or negative equity, and 15.2% were underwater by 10% or more.
  • Interest rates on about a quarter of all mortgage loans outstanding, or $2 trillion, are scheduled to reset this year and next, according to Homeowners who opted for extremely low teaser rates in recent years could see their payments eventually double, said Christopher Cagan, First American’s director of research and analytics.
  • Defaults and foreclosures are already on the rise, thanks in part to higher interest rates, cooling real-estate markets and overextended borrowers. Nationally, 117,259 properties entered some stage of foreclosure in February, according to foreclosure-monitoring firm RealtyTrac, a figure that’s up 68% from February 2005.

This is a real problem that every homeowner should be aware of. Any homeowner with negative equity faces foreclosure if hit with some emergency – such as a job loss, death, or severe illness. I’ve always hated zero-down mortgages and am a strong pitchman for putting 20% down on your house – and this latest trend of negative equity just backs me up. So if you’re thinking about buying a a house soon, take a lesson from these unfortunate series of events and be sure to put some equity into your house so that this doesn’t happen to you.

7 Responses to “The Great Oxymoron: Negative Equity”

  1. Jennifer

    20. Apr, 2006

    I think the housing bubble ‘bursting’ is being propagated by blogs unintelligent news media outlets. I just recently sold my home for $425k. I only paid $285k for it in late 2004. Really- there is still a whale load of cash to be made in real estate. Having said that I am in an apartment – had to sell and downsize (for now) bcz divorce 🙁

  2. Jason

    20. Apr, 2006

    Congratulations on the sale! I agree that real estate is still a good place to be – I’m there myself. And I’m glad you had such a positive experience; however, the actual facts and data provided by government agencies, statistic collection agencies, etc. show that the real estate market, as a whole, is slowing down. Sure, there are markets that are still doing great, but I think too many people are seeing those “great” markets as representative as the whole and are not being cautious enough when entering the market. I always think it’s better to be safe then sorry – especially when you have $400k on the line.

  3. Oxymoron

    15. Jun, 2006

    Check out this introduction article on Oxymoron:

  4. alex

    04. Aug, 2006

    Boy!! What a moron i was but not more than that Oxymoron.May god bless him and this site or also may bestowed it from certain features which are lacking now.

  5. shredder

    25. Aug, 2006

    In the process, Do try to raising the bar of expectations. Expectations in the age of consumer cynicism and control are hard to meet.


    31. Jan, 2007



    12. Feb, 2007

    god work

Leave a Reply