People Under 40 Battered by Negative Home Equity

The idea that a home is a good long-term investment continues to get battered. Like most theories about money return, the calculations are based on a house being bought and held for many years or even decades. From the postwar period until fairly recently, Americans would buy a home and not sell it until they retired as many as 40 years later. Often the homes would have increased in value several times over.

New data from real estate research firm Zillow will cause many younger Americans to lose whatever belief they had in the financial advantages of the home market altogether.

The research firm reported:

Today Zillow released our second quarter negative equity report. While the we’re happy to report that the rate for U.S. homeowners with a mortgage has declined to 30.9 percent from 31.4 percent in the first quarter, deeper analysis of the data shows that it disproportionately affects borrowers under 40 years old.

Nearly half (48 percent) of homeowners with mortgages under the age of 40 are underwater, our analysis found.

And, if housing remains stagnant, many of these owners may never get a return of any sort. At least the youngest can wait the market out for decades — as if that is a good way to approach ownership of any asset.

Zillow reports:

Looking at our sample of borrowers, we see that negative equity is most common in younger age brackets with 39% of borrowers age 20 to 24, 48% of borrowers age 25 to 29, and 51% of borrowers age 30 to 34, underwater on their mortgages.

So, America has a huge group of homeowners who will not retire for another half century. Some of these people bought a house that has already lost value. They have as much as two generations to decide whether to keep the home, perhaps sell it at a loss or default on their mortgages, either because they must for financial reasons or want to for strategic ones. And somewhere in the maze of millions of young individual homeowner decisions, spread over years, is one the most important keys to the U.S. home market.

Douglas A. McIntyre