4 signs your home is about to lose value
September 23, 2009 · Tagged with Real Estate
Despite signs that the real estate market is bottoming out, millions of homeowners are likely to find themselves in worse shape within the next two years.
Nearly half of the nation’s 52 million mortgage borrowers will have negative equity by the end of the first quarter of 2011, up from the 14 million at the end of this year’s first quarter, according to estimates in an Aug. 5 report by Deutsche Bank. With so many borrowers underwater – or owing more on their home than it’s worth – the risk is high that they’ll default and their homes will go into foreclosure, says Mark Zandi, the chief economist at Moody’s Economy.com. (Moody’s Economy.com estimates that 17.5 million mortgage borrowers will be underwater by early 2010.)
Negative equity is the product of several factors. The most significant weight is the broad and persistent decline in home values. A Zillow.com index of home values fell 12.1% year-over-year during the second quarter, resulting in a total drop of 22.3% since the market peaked in mid-2006, according to an Aug. 11 report by the online real estate marketplace. Many buyers who bought their home around the peak with a 20% down payment have lost that dollar amount.
“The continued decline of U.S. home prices will contribute to rapidly rising rates of negative equity,” Karen Weaver, a Deutsche Bank research analyst, wrote in the report. “The most obvious implication is for mortgage defaults.”
Current homeowners, or those shopping for a home and who are concerned that they’ll end up underwater, should consider how long they expect to live in their house. Being underwater doesn’t affect homeowners unless they plan to sell, Zandi says.
Individuals who are staying put for at least the next five to seven years will likely recoup the lost value of their home, says Amy Bohutinsky, a Zillow.com spokeswoman. In addition, homeowners should refrain from borrowing against their mortgage, she says.
Those who find themselves underwater can turn to the federal Making Home Affordable plan, which can help you refinance or do a loan modification.