Home values keep dropping, and a recent report highlights that as property values go down, more American homeowners find themselves with negative equity. This means they can’t sell their homes for enough to cover what they owe on their mortgages, pay real estate agents, and fund the down payment for a new house without dipping into their savings.
While foreclosures are still a major issue, the drop in property values and the rise in negative equity are causing more harm to the housing market. Zillow’s data shows that in the third quarter of 2011, around 28.6% of U.S. homeowners owed more on their mortgages than their homes were worth, affecting roughly 14.6 million borrowers.
Certain parts of the U.S. are seeing especially steep declines in property values. Research by 24/7 Wall St. pointed out that once-thriving housing markets in places like California, Florida, and the Southwest are now struggling the most with underwater mortgages. High numbers of homes for sale in these areas might be pushing prices down further. For instance, house prices in Las Vegas have dropped nearly 60% from pre-recession levels and are still falling.
For the housing market to recover, there needs to be more buying and selling activity. However, falling prices and negative equity are creating a standstill, worsening the existing problems. This lack of movement is making the housing market’s issues even more severe.