To explain the financial term, “negative equity,” let’s take a trip back in time. If you, as a mortgage professional, could go back in time to 2009, the housing picture would look a great deal different than it does today.
There would be, in fact, quite a few differences on the average family’s economic home front. However, there would be one big difference that Palm State Mortgage Company brings to your attention today. You would notice a vast number of houses under water or upside down!
Negative Equity: Healing The Economy, One Mortgage At A Time
Positive Equity Makes Happy Homeowners!
These quaint expressions, “Under water” or “upside down” would seem very strange if they were not mortgage slang for certain economic indications. To put it simply, both of these expressions mean families owe more on their properties than the properties are worth. In 2009, entire neighborhoods in our beloved hometown of Orlando were “under water.”
A more technical way of describing this soggy economic condition is that the homeowners have negative equity in their houses. Investopedia explains it thus: a time “When the value of an asset falls below the outstanding balance on the loan used to purchase that asset. Negative equity is calculated simply by taking the value of the asset less the balance on the outstanding loan.”
Negative Equity: An Unhealthy Economic Condition for a Homeowner
We should also explain that “Equity is the value of an asset less the value of all liabilities on that asset.” So, if you are paying on a home mortgage, you delight in every bit of equity you own. That is “positive” equity!
BACK to our time traveling scenario. As we fast-forward to 2017, recently we see CoreLogic reported “that another million homes regained equity.”
An operative word in that sentence is “another” because 48 million homes now have positive equity in 2017. The new and optimistic report means that 93.8 percent of the homes in the US with a mortgage are above water.
Put Positive Equity To Work For You!
Positive equity: a desired condition.
In spite of nay-sayers and doomsday pessimists, such reports confirm that we are a nation with a rising economy and a new vision of optimism.
This is beginning to show in national statistics, and we at Palm State Mortgage could see glimmers of the positive economic change even five years ago. This week Dr. Frank Nothaft, chief economist for CoreLogic, announced, “The equity build-up has been supported by home-price growth and pay down of principal.”
That comment simply means that in spite of their financial struggles, families have been paying their mortgage bills. And for some of them, the interest is paid. That means the principal is now paving the way for true ownership of their home.
In the last couple of years, we have been telling you, prices of homes have been gently on the rise. At the same time, steadfast homeowners in a struggling economy might have struggled financially. But they paid their mortgage bills.
Dr. Nothaft added another bright note. He stated, “about one-fourth of all outstanding mortgages have a term of 20 years or less…” Then he added, “which amortize more quickly than 30-year loans and contribute to faster equity accumulation.”
Add the good news about positive home equity is the 235,000 jobs recently reported, and a thriving stock market. And Palm State Mortgage Company sees a future as bright as the Florida sunshine.
