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Zillow: 'Underwater' Homeowners Causing Housing Gridlock

By    |   Thursday, 28 August 2014 06:29 PM

Negative home equity is causing gridlock in the housing market even as home values gradually rise, according to Zillow Real Estate Research

Many homeowners don't have enough home equity to sell their homes, creating a ripple effect across the housing market.

The good news is that negative equity rate, or percentage of homeowners with mortgages more than their home values, fell to 17 percent in the second quarter from its high of 31.4 percent in the first quarter of 2012,

Editor’s Note: New Warning - Stocks on Verge of Major Collapse 

The bad news is that the effective negative equity rate, or homes with loan-to-value ratios more than 80 percent, "remains stubbornly high" at 34.8 percent of homeowners with mortgages.

With little equity, those homeowners trying to sell their homes have a tough time coving the down payment and selling costs like real estate agent commissions and closing fees.

Younger homeowners and less valuable homes are more likely to be underwater, according to Zillow.

About 18.7 percent of Generation X homeowners, those 35 to 49-years-old, are underwater on their mortgage, compared to 10.9 percent of Baby Boomers and 19.6 percent of Millennials.

Of homeowners with mortgages, 28.2 percent valued within the bottom third were underwater in the second quarter, compared to 15.8 percent of homes in the middle tier and 9.2 percent in the top tier.

"Because it is very difficult for an underwater homeowner to list their home for sale, the disparities in negative equity among generations and price tiers stand to have ripple effects throughout the housing market," writes Svenja Gudell, Zillow senior director of economic research, in the report.

Older Baby Boomers with mid- or high-priced homes can't find move-up buyers because younger homeowners can't sell their homes, and first-time homebuyers can buy homes because of high negative equity rates of less valuable homes.

"High levels of negative equity will remain a drag on the housing market for years to come," Gudell states.

Zillow predicts home values will increase 4.2 percent from June this year to June 2015, and negative equity rates will decrease to 14.9 percent at most by the second quarter of next year.

Standard & Poor's/Case-Shiller indexes indicate the housing market is cooling off. The Case-Shiller National Index gained 0.9% in June and its 10- and 20-city composites increased 1 percent.

"Home price gains continue to ease as they have since last fall," says David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. "For the first time since February 2008, all cities showed lower annual rates than the previous month."

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

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Negative home equity is causing gridlock in the housing market even as home values gradually rise, according to Zillow Real Estate Research.
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Thursday, 28 August 2014 06:29 PM
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