Is America Drowning in a Sea of Negative Equity?

CARDIFF, UK, November 26, 2012 (Press-News.org) More than 14 million homeowners in America now owe more on their mortgages than what their houses are actually worth. Although house prices have actually risen in the third quarter experts are saying that the broader economy can still shock property values in America.

The 14 million homeowners are referred to as "underwater" homeowners, meaning that they owe more to the banks than what their house will be worth on the open market. The national average of homeowners in America in negative equity stands at 28.2%. However some counties and states have a much higher percentage. Miami-Fort Lauderdale for example in Florida has a 41.4% average of homeowners who have found themselves in negative equity. A staggering 29.1% of those people owe more than double what their property is worth. 25.5% of the homeowners in the county who have found themselves "underwater" are more than three months late on their mortgage repayments.

Florida is not alone either, Chicago is another badly hit area of the USA. 36.6% of homeowners here find themselves in negative equity. Whilst Seattle finds itself just slightly behind with an average of 34.2% of homeowners being classed as underwater.

Despite these high levels of negative equity there was some good news for the real estate market, property values saw its biggest rise in its third quarter since 2006. However many see the US housing market as the main reason for the economic crisis in the first place. In 2006 property prices peaked in America but the housing bubble burst a year later in 2007. It was during 2004 and 2006, when risky subprime mortgages rose to around 20% of all mortgages, that the problem began to be created. The reason being that risky mortgages were given to people with poor credit histories and these mortgages were adjustable rate ones which had its interest rates vary according to the cost to the lender of borrowing on the credit markets. Then in 2006 the house prices began to decrease quite steeply and these homeowners struggled to keep up with repayments when higher interest rates kicked in. As a result foreclosures soared when defaulting on mortgages began to take hold. Once this began to make an impact, many feared the reliability of the US credit and financial markets which in turn led to credit tightening around the world. As a result the world saw an economic downturn not seen since the times of the Great Depression.

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