This is a bit of a scary thought, but of all the people who bought homes in the United States within the last two years, 39% of them owe more money on their mortgages then their houses are worth. 39% is getting awfully close to HALF. Of course this is a very scary thought – and here are two main factors as to why that might be:
1. Falling house prices
2. Small or no down payments
Back when you actually had to have a down payment you had immediate equity in your house. But since zero-down mortgages became available you started out with zero equity. These mortgages were used partly because people just thought housing always went up – and some mortgage brokers may have been chasing commissions (once the mortgage is in place – they are out of the picture). The housing bull market (until now) had been the longest in history – and many first time homeowners weren’t old enough to remember the last housing market decline – perhaps they were under the illusion that housing markets didn’t decline?
Have a great weekend everyone!
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RRSPs: The Definitive Book on Registered Retirement Savings Plans