According to a recent report from Zillow, more than 30% of the U.S.
home-owning population is underwater on their mortgages. This is a grim
outlook for the real estate market despite increasing property values,
which we can attribute only to the shortage of homes built within the
last 12 months. As 2013 looms, will these upside-down homeowners weather
the rough economic storm or will they list their properties and try to
move on?
The fed is desperately trying to come up with a solution to rescue
those individuals who are drowning in negative equity in hopes to free
up some of their finances. The logic is that those individuals will then
turn to the marketplace with their newly freed funds and bolster the
sluggish economy with it. But the fed may be in no position to bail
anyone else out with the looming fiscal cliff.
It’s
great that home prices are rising, but it will provide little relief to
the still-crippled real estate market as we move into 2013. Although some markets are seeing sales gains,
the current environment may not have enough of an effect on potential
buyers as they weigh the pros and cons of investing in a home.
Primarily, will the property’s value increase enough to outweigh any
potential for negative equity?
But as property values go up, even slightly, so do the ambitions of
property owners who may feel they can capitalize by asking for higher
selling prices or increasing monthly rents. As such, commercial and
residential renters should look to lock in low monthly payments by
securing long-term occupancy contracts before prices go any higher in
the upcoming year.
“That might be problematic for some rent-to-own properties,” says Brian McNerma, credit consultant with rent to own property listing service, HomeStarSearch.
“Sellers will try to make up for their financial losses by passing the
negative equity on to potential homeowners.” But not all property owners
are underwater on their mortgages, he insists, and he urges those
interested in lease-option to research the contract and the seller
carefully.
Renters unable to escape higher monthly rents, however, just might
consider making the long-awaited home purchase.Record-low interest rates
and affordable prices are definitely enticing to new home buyers, but
they do little to help those currently upside-down on their mortgages.
Therefore, the number of home sales in 2013 – while trending upward
slowly but surely – will be greatly limited by those who can’t afford
and cleanly walk away from negative equity and start anew.
In fact, those affected most by negative equity are young owners
who purchased homes with low down payments and didn’t have a chance to
see equity improve before the housing bubble burst. Now they’re left
with financial security enough to maintain the mortgage, but not enough
to get out from underneath it.
Despite rising property values, the market is far from healthy. Even
with seeming upward trends in major markets, it’s important to look at
the other factors that influence those trends prior to making the
assumption that things are going well.
The slow growth however, is good long-term as it allows potential buyers to establish down payments, build credit,
and take advantage of various financing options without housing
becoming too unaffordable. The market depends on this type of behavior,
which is much more stable than the easy credit days prior to the
recession.
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