Home / News / Foreclosure / How Long Will Negative Equity Last?
Print This Post Print This Post

How Long Will Negative Equity Last?

There has been a lot of recent talk about mortgages in negative equity â€" underwater homes â€" and the impact on the housing market. In response, ""First American CoreLogic"":http://www.facorelogic.com asked the question: When will these homes start to float?


The company estimates that the typical underwater homeowner will not begin to surface until late 2015 to early 2016. It's an even longer stretch for some of the most depressed markets, where First American CoreLogic says the typical borrower in negative equity may not experience positive equity until 2020 or later.

Even in markets with low shares of negative equity, the recovery time will still be long because the few borrowers that are upside down are deeply in negative equity and these are typically not high appreciation markets, the company has concluded.

Although house price appreciation will, over time, offset negative equity, First American CoreLogic says amortization (the paying down of loan balances) will be a more significant remedy to negative equity. The company's data shows that over the next 10 years, the


average loan balance will decrease by an annual rate of 3.3 percent; meanwhile home prices are expected to increase at a 3 percent annual rate over the next decade.

To forecast when the typical U.S. homeowner will achieve neutral and positive equity, First American CoreLogic ""looked at 10 key markets"":http://www.cvic.com/Clients/FACL/20100325_pos_equity.html, plotting equity trends over the next decade, and assuming a nominal annual appreciation rate of 3 percent.

Of the markets studied, the Washington D.C. area is expected to reach positive equity by 2015.

Atlanta, Georgia; Dallas, Texas; and Riverside-San Bernardino, California are projected to rise to the surface in 2016. Boston, Massachusetts should find a balance in 2017.

Cape Coral-Fort Myers, Florida; Pittsburgh, Pennsylvania; Las Vegas; and Lancaster, Pennsylvania are forecast to reach positive territory by 2020.

Detroit, though, is not projected to recover even by 2020, because of its depressed economy.

The latest numbers from First American CoreLogic show that more than 11.3 million, or 24 percent, of all residential properties with mortgages were underwater at the end of the fourth quarter of 2009.

Among the ""new housing initiatives"":http://dsnews.comarticles/white-house-adds-underwater-unemployed-assistance-to-housing-program-2010-03-26 announced by the administration Friday was assistance for borrowers with negative equity. In order to deter these homeowners from strategically defaulting, the Treasury will begin requiring servicers to consider principal write-downs as part of their Home Affordable Modification Program (HAMP) evaluations for borrowers whose loan balance is more than 115 percent of the property's current value. The plan also includes a Federal Housing Administration (FHA) refinancing program for negative equity mortgages.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

Check Also

Federal Reserve Holds Rates Steady Moving Into the New Year

The Federal Reserve’s Federal Open Market Committee again chose that no action is better than changing rates as the economy begins to stabilize.