Price declines lead to "negative equity." Almost 30% of Virginia mortgages are at or near negative equity; in fact, Virginia, is #8 of 50 states for owners owing more than the house is worth.
But the latest data defines a serious nationwide problem: Effective Negative Equity, which now stands at 50%.
The graphic, at left, shows the "old" model of homebuying: start modest, and move up to a progressively larger house every few years.
This model is a relic of the past.
Housing analyst Mark Hanson defines the problem of Effective Negative Equity:
Based on that, over 50 percent of all mortgaged households in the US are effectively underwater — unable to sell for enough to pay a Realtor and put a down payment on a new purchase without coming out of pocket. Because repeat buyers have always carried the market as the foundation, this is why demand has not come back. It's as if half the potential buyers in America died over a two-year period of time."
Bolding is this blog's. Read Mark Hanson's comments, and the rest of the article, below:
Graphic is from www.CalculatedRiskblog.com