The answer to that is rather complex, but one major factor is that trade-up buyers — folks who upgrade from smaller, cheaper “starter homes” to pricier properties, and who classically are a pumping piston in the engine that drives the housing market — are finding it difficult, if not impossible, to trade up right now. This key segment of the market is especially likely to be “equity poor.”
Unlike underwater borrowers — who have negative equity, with more debt on their homes than those homes are worth — equity-poor borrowers have less than 20% equity in their homes. Why 20%? In the current tight lending climate, buyers generally need to put 20% down on a home in order to get a mortgage. So if you’re currently in a $400,000 home, even if you have 20% equity, you can’t trade up to buying a $600,000 home solely on the basis of the money you would extract if you sold.
According to CoreLogic, a real-estate-data provider based in Santa Ana, Calif., roughly 45% of homeowners with mortgages have less than 20% equity in their homes. This tally includes owners who are underwater. Approximately one-quarter of this group can be described as equity poor. In other words, more than 11 million households have some equity, but not more than 20%, and they are not far enough up the ladder to easily attempt a jump up to the next rung.
by Alison Rogers, Time | Read more:
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