Today’s sellers don’t have to worry about underwater mortgages

The recent one KernLogic Insights into the wealth of homeowners The third quarter report shows a continued positive trend of a lack of underwater mortgages in America today. Underwater mortgages – where borrowers owe more on their home than what it is worth – pose a foreclosure risk and prevent people from selling their homes, something that became rampant after 2008.

In 2010, more than 23% of homes in America were underwater. Our new advertising data for that period shows that there were between 250,000 and 400,000 new advertisements per week as many sellers with underwater mortgages were forced into a distressed market. This resulted in a higher level of distressed sales compared to historical averages.

However, the home loan market has improved dramatically since then, giving homeowners looking to sell or buy their next home more options. Underwater mortgages are a good barrier for sellers – even more so than mortgage rates. That’s why the fact that this data line is just 0.1% away from all-time lows makes me smile this holiday season.

Currently, only about 1.8% of homes are underwater, which amounts to approximately 990,000 homes. The graph below illustrates that there are few underwater homes today, while many homeowners have significant equity. Furthermore, this data doesn’t even include the 40% of homes in America that are mortgage-free.

The chart below shows which states experienced year-over-year gains or losses in equities. This information provides valuable insight into where stock growth occurred.

This is evident from a recent study by National Association of Real Estate Agents (NAR), the average down payment recently reached 18% for all buyers, compared to down payments in the single digits during the housing bubble period. This puts recent homeowners in a strong position and provides them with a reasonable cushion should the economy experience a severe recession.

And this type of down payment gives them a good starting point for when they sell and buy their next home. Let’s not forget how wonderful the American homeowner is FICO score data looks like this time; the ability of sellers to turn around and buy is now much better.

The moral of this story is that we are not at risk of a foreclosure crisis like we experienced during the Great Financial Recession, as we saw massive credit stress develop years before the 2008 recession. Homeowners also have sufficient equity if they want to sell for any reason.

During the housing bubble recovery, many homeowners looking to sell had to wait or pay cash to cover the difference of what they owed. With very few homeowners underwater, once mortgage rates drop, they will have enough equity to sell their home and buy another.

Moreover, since Freddie Mac And Fannie Mae are under receivership, we don’t have to worry about stricter credit standards in a market where many homeowners are underwater. Unlike 2008, we will likely see fewer bankruptcies during the next recession if it occurs. Additionally, more homeowners can sell their homes and buy new ones. This is something to be optimistic about as we approach the holidays!