The Truth About Negative Home Equity Headlines

The Truth About Negative Home Equity Headlines

Recently, home equity has been a hot topic in real estate news. And, if you've been paying attention, you may have noticed that the number of homeowners with negative equity is increasing. But don't be alarmed by the headlines.

In reality, headlines do not provide all of the information required to understand what is happening and on what scale. Let's take a look at one of the major equity stories you've been hearing about and see what's going on. You'll have the context you need to understand the big picture this way.

Headlines are focused on short-term equity numbers and fail to convey a long-term perspective.
One piece of recent news focuses on the percentage of 2022 homes that are currently underwater. Underwater refers to a situation in which the homeowner owes more on the loan than the home is worth. This was a major issue when the housing market crashed in 2008, but it is much less so now.

Right now, media coverage is based on a report from Black Knight, Inc. According to the source's actual report:

“Of all homes purchased with a mortgage in 2022, 8% are now at least marginally underwater and nearly 40% have less than 10% equity stakes in their home, . . .”

Let's take a step back and look at the big picture. The data-driven report from Black Knight focuses on homes purchased in 2022, but media headlines don't always mention that timeframe or provide context about how unusual the year 2022 was for the housing market. In 2022, home price appreciation skyrocketed, peaking around March-April. Since then, the rate of appreciation has slowed.

Homeowners who purchased their home last year at the peak or who paid more than market value in the months that followed are more likely to be marginally underwater. The qualifier marginally is another important piece of the puzzle that the media does not always include in their coverage.

So, what does this mean for people who bought a house in 2022? It's important to remember that owning a home is a long-term investment, not a quick fix. When headlines focus on the short term, they do not always provide the full context.

Generally, the longer you live in your home, the more equity you accumulate as you pay down your loan and home prices rise. If you only owned the home for a few months, you may not have gained significant equity right away due to recent market conditions. However, it is also true that many homeowners who have recently purchased a home are unlikely to be looking to sell anytime soon.

In conclusion
Knowing the context is critical in everything. Talk to your local real estate advisor if you have any questions about real estate headlines or how much equity you have in your home.

Agents, please join us today, January 10th, to gain the market knowledge you need to prepare for what will occur in real estate this year.

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