Here’s what you need to know about negative equity in our market.

Recently, I have been noticing that there's been a growing number of news media outlets saying that there are a growing number of homeowners who have negative equity. That seems a little surprising since home prices have risen significantly recently, giving homeowners a ton of equity. So I wanted to dive into that and figure out where this information was coming from. 

As it turns out, a lot of the coverage is coming from a dubious article that stated this: Of all homes purchased with a mortgage in 2022, 8% are now at least marginally underwater, and nearly 40% have less than 10% equity stakes in their home.

Let's unpack that a little bit and try to get a bigger picture of what's going on here. The main thing I’ve noticed is that this article is only looking at a specific part of 2022. As you know, last year was an incredible year for home price appreciation. We saw some very dramatic increases in home prices that started to taper off around April, May, and June of this past year. Because of the market shift, it's very easy to look at a small segment and say there's negative equity during that time period. However, that's not what I'm seeing in the media.

“Buying a home won’t turn you a profit in a matter of months.”

One of the things that I've noticed in the media is that they're not really defining what a marginally underwater homeowner is. 8% are marginally underwater, but there's no real definition as to what that is. It does say that 40% have less than a 10% stake in their home, but that makes sense. If you purchased your home in 2022 at or near the peak of the market, you’ll have some negative equity in the short term. 

However, we all know that real estate is a long-term investment. You shouldn’t purchase a home to turn a profit in a matter of months. In a normal market, it would take three to five years of home price appreciation and paying down your mortgage before you would even break even on selling your home because of the costs involved.

That being said, if you purchased a home last year and need to sell now for whatever reason, there are things we can do to help. Call or email me with questions about this topic or anything else. I am always willing to help!