To The Moon

News about Negative Equity (US homeowners) Source: https://www.dailymail.co.uk/news/article-12275733/US-homeowners-lost-108-4-BILLION-home-equity-year.html Inside the negative equity timebomb: US homeowners lost $108.4 BILLION in equity this year - leaving more than 200,000 at risk of going 'underwater' if property prices fall another 5% Average US homeowner saw home equity drop of $5,400 in first quarter of 2023 Realtors say they are now seeing more homeowners in negative equity It comes after mortgage rates reached an eight-month high of 6.81 percent Annual U.S. homeowner equity change, Q2 2023 U.S. home equity changes year over year, Q2 2023 From CoreLogic’s 8 Sep 2023 report:In the second quarter of 2023, the total number of mortgaged residential properties with negative equity decreased by 6% from the first quarter of 2023 , representing 1.1 million homes, or 2% of all mortgaged properties. On a year-over-year basis, negative equity rose by 4% to 1.1 million homes, or 1.9% of all mortgaged properties, from the second quarter of 2023. Average annual home equity changes by U.S. state, Q2 2023 Average home equity changes by U.S. state year over year, Q2 2023 My investing muse The current interest rates and inflation have caused a great decline in the number of housing transactions. Though there are families who are seeking their first property or upgrade, most families have to delay this due to affordability and the huge amount of interest. Families who have a current place may opt to delay their upgrade as they do not wish to leave their current low interest rates in exchange for a much higher mortgage interest rate. The recent strikes from teachers, healthcare workers, and auto workers have highlighted the cost of living crisis. The gap between the rich and lower income brackets continues to widen. When basic livelihood is no longer possible, history reveals that civil unrest would creep in. People who are calling for interest rate cuts do not realize that this would lead to a “crash up” that would widen the gap in income inequality. The sky-high prices of property would surge due to “affordability” & increased demand. This adds to the cost of living burdens. Another concern is the Commercial Real Estate (CRE). With record empty offices in various US cities, the work-from-home hybrid has left retailers in town struggling. Following the tightening of credit, office vacancies, crime, and refinancing challenges, the CRE is looking at a turbulent time. From a recent Business Insider article: The commercial real estate market is wobbling, and market veteran Ed Yardeni thinks it will help get the central bank to stop hiking rates.Bond yields have jumped in recent months, making the cost of borrowing money far more expensive than businesses have been used to. That isn't helping a commercial real estate market already plagued by office vacancies, heavy refinancing needs, and a credit squeeze after the March bank failures. We are expecting the coming months to be challenging. With anticipation of one more rate hike by yearend, the credit issue and home affordability should worsen. This is not a time to consider major household purchases, auto or home upgrades. It can be a good time to revisit our expenditure. A timely refresh of our monthly income and expenditure can put affordability into better light so that the family can have options (to remove, replace, or change) for some of the spending should tougher days hit. Unfortunately, this feels more like a structural problem and we need strong leadership to lead the country out of this tough spot. The new war front involving Israel has added more burden to the country. Let us be prudent and spend within our means. Summary of US property (by Google Bard) As of August 2023, an estimated 23% of US homeowners have negative equity, meaning they owe more on their mortgages than their homes are worth. This is down from a peak of 26% in 2012, but it is still significantly higher than the pre-housing bubble level of around 5%. Negative equity is concentrated in certain regions and among certain types of homeowners. For example, homeowners in the Northeast and Midwest are more likely to have negative equity than homeowners in the South and West. Additionally, homeowners who purchased their homes during the housing bubble are more likely to have negative equity. The current economic environment is making it more difficult for homeowners to get out of negative equity. Rising interest rates are making it more expensive to refinance, and home prices are starting to plateau in some markets. As a result, it is likely that the negative equity rate will remain elevated for the next few years. Here are some of the factors that have contributed to the high level of negative equity in the US: The housing bubble of the mid-2000s, which led to inflated home prices. The Great Recession, which caused home prices to crash. The slow economic recovery, which has made it difficult for homeowners to rebuild their equity. Rising interest rates, which have made it more expensive to refinance mortgages. A plateauing housing market in some areas. Negative equity can have a number of negative consequences for homeowners, including: Difficulty selling their homes. Inability to refinance their mortgages. Increased risk of foreclosure. Reduced financial flexibility. Increased stress and anxiety. The government and lenders have taken a number of steps to help homeowners with negative equity, such as: The Home Affordable Modification Program (HAMP), which helps homeowners modify their mortgages to make them more affordable. The Hardest Hit Fund, which provides financial assistance to homeowners in states that were hardest hit by the housing crisis. The Federal Housing Administration (FHA) Short Refinance Program, which allows homeowners with negative equity to refinance their mortgages without having to make a down payment. Despite these efforts, many homeowners with negative equity are still struggling. The negative equity situation in the US is likely to remain a challenge for the next few years. The consequences of negative equity can be severe for homeowners, including: Difficulty selling a home. If a homeowner needs to sell their home but has negative equity, they may be forced to sell it at a loss. This can mean that they will have to pay the difference between the sale price and the amount they owe on their mortgage out of their own pocket. Inability to refinance a mortgage. Negative equity can also make it difficult or impossible to refinance a mortgage. This is because lenders typically require homeowners to have a certain amount of equity in their homes before they will approve a refinance loan. Increased risk of foreclosure. If a homeowner is unable to make their mortgage payments, they may be at risk of foreclosure. This is when the lender takes possession of the home and sells it to recoup their losses. Reduced financial flexibility. Negative equity can also reduce a homeowner's financial flexibility. For example, it may make it difficult to borrow money for other purposes, such as home improvements or education. Increased stress and anxiety. Negative equity can also be a stressful and anxiety-inducing experience for homeowners. They may worry about being able to make their mortgage payments, losing their home, or being able to sell their home in the future. What could be the actions taken by the Banks? (from Google Bard) Banks have a number of options available to them if a homeowner has negative equity and is unable to make their mortgage payments. These options include: Loan modification. This is when the bank agrees to change the terms of the mortgage loan, such as lowering the interest rate or extending the repayment period. This can make the mortgage more affordable for the homeowner and help them to avoid foreclosure. Forbearance. This is when the bank agrees to temporarily suspend or reduce the homeowner's mortgage payments. This can give the homeowner a chance to get back on their feet and start making their payments again. Short sale. This is when the bank agrees to allow the homeowner to sell their home for less than the amount they owe on their mortgage. This can help the homeowner avoid foreclosure and reduce the amount of money they owe to the bank. Foreclosure. This is when the bank takes possession of the home and sells it to recoup its losses. Foreclosure is a last resort for banks, but it is an option that they may pursue if a homeowner is unable to meet their mortgage obligations. Homeowners who are facing negative equity should contact their lender as soon as possible to discuss their options. There are a number of programs and resources available to help homeowners with negative equity, and lenders may be willing to work with homeowners to find a solution that works for both parties. @TigerStars $S&P 500(.SPX)$ $Vanguard Real Estate ETF(VNQ)$