So, you own a house. Feels pretty "adult" of you, right? And then people start talking about NEGATIVE EQUITY. You don't know what it is, but...IT. SOUNDS. BAD. Do
IF YOU'RE ADULTING...
So, you own a house. Feels pretty "adult" of you, right? And then people start talking about NEGATIVE EQUITY. You don't know what it is, but...IT. SOUNDS. BAD. Do you have it? How do you get it? How long will it last? It carries the same ominious apprehension that you feel, when you find out your signifcant other has the stomach bug: AM I NEXT?
In street terms, your home's equity grows one of two ways:
- each month that you make your mortgage payment, a (small) portion goes toward the balance of your loan (the "principal), which creates equity
- your home's value increases
So what is NEGATIVE EQUITY? Basically, it's overpaying for your home so what you OWE is more than the home is worth. The amount of negative equity has increased for the first time in 4 years.* How did this happen? We came out of the recession, and sellers were selling homes for ridiculously low prices. As the economy got stronger, home prices started to increase...and THEN, we got those historically low interest rates and home sales went through the roof! As the demand for houses increased, buyers started paying more and more and more...until they were paying ABOVE top dollar for certain homes.
How can you make sure you don't buy a home and end up with negative equity? Knowing WHICH house to bid strongly and knowing HOW AND WHEN to pay list price (or higher) will determine if your purchase is "smart." There's no "tool" you can apply across the board to determine this. Each home has to be analyzed on its own to determine it's best value and its future potential in a stable market.
Determining a home's value is a lot like going on a first date. The initial experience may be great, but you're going to have to spend some time analyzing to make sure that you're not giving your best to something that won't measure up in the future.
*new data released from CoreLogic
My husband and I are the founding members of a top selling Real Estate team in Anderson, SC. I have been a native of the area for over 20 years and attended elementary, middle, high school and college....