One Third of US Households in Negative Equity

Posted on 14 January 2010 by Ray Boulger

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Rasmussen (One of the top USA polling companies) yesterday released its latest findings on what US consumers think about their housing market and it is not positive news.

They have little confidence in the housing market, either in the short or medium term, with only 55% of adults saying that buying a home is the best investment families can make, a percentage that has fallen steadily from 79% as recently as June 2008. In fact belief in a family home as an investment has declined to its lowest point since the survey started asking this question and 65% of people think it will be at least 3 years before house prices recover.

Most homeowners expect little change in values over the next year, with 19% of homeowners expecting their home will be worth more in a year and 20% believing it will be worth less. Even looking 5 years ahead only 53% expect the value of their home to increase and 12% expect it to be lower.

Perhaps the most interesting figure from this survey is that only 54% of homeowners believe their home is worth more than the mortgage. 28% think they are in negative equity and presumably the rest are don’t knows. Bearing in mind the tendency of people to overestimate the value of their property in a downturn and the number of don’t knows this would suggest that around a third of US homeowners are in negative equity.

This confirms that the US housing market is still in a far worse position than the UK market, where, based on the latest estimate from the CML and allowing for subsequent price movements, well under 10% of people are now in negative equity. In the US some borrowers who benefitted from the Government programme persuading lenders to write off some of the debt, and also lower the interest rate on the remaining balance, are now again in default. Furthermore there are still many Option ARM mortgages due to be reset at higher interest rates this year.

With housing being such an important factor in consumer confidence none of this bodes well for the speed of the economic recovery in the US, despite their banks repaying the emergency government loans much quicker than UK banks.

Because the USA is such a powerhouse in the global economy, if it is slow to recover from the recession it will make it that much harder for the rest of the world’s economies to improve. This is a further indication that UK interest rates are likely to stay very low for quite some time and yesterday’s news from Germany that its recovery is already faltering adds to concerns about the global economy. 

Category: Bank of England, House and home, Interest rates, Property market

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