Don’t Be Scared by Negative Home Equity Headlines: Understanding the Context and Long-term View

Recent headlines about negative home equity might have caught your attention, but don’t let them scare you. The truth is that these headlines often need more context and provide the whole picture.

Home equity is the difference between the market value of a property and the outstanding balance on its mortgage. If the due balance is higher than the market value, the homeowner is said to have negative equity or to be “underwater” on their mortgage.

One recent news is that many homeowners who bought their properties in 2022 are now underwater. However, this only tells part of the story.

Firstly, the data is based on a Black Knight, Inc. report, which focuses on homes purchased in 2022, but headlines don’t always clarify this. Additionally, the market conditions of 2022 were unusual, with home prices skyrocketing in the first half of the year. This means homeowners who bought their property at the market’s peak or soon after might be more likely to be underwater.

It’s also worth noting that the phrase “marginally underwater” is often used in these headlines, meaning the homeowner owes only slightly more than the property’s value. This is a less complicated situation than being deeply underwater.

It’s also important to remember that owning a home is a long-term investment, not a short-term play. Over time, homeowners generally gain equity as they pay their mortgage and home prices increase. So even if you’ve recently bought a property and still need more equity, it’s likely to increase over time.

In conclusion, don’t be frightened by the headlines about negative home equity. It’s essential to look at the context, understand the data and ask your local real estate advisor for advice. Remember that owning a home is a long-term investment, and equity will typically increase over time.