Fossei

The housing market has been experiencing problems since its last peak in 2006. Foreclosures, dropping home and property values, and underwater mortgages are only a few of these issues. Considering the severity of these problems it’s unsettling to realize that the worst is yet to come.

Signs do point to the real estate market bottoming out, but the repercussions of that will continue to affect home sellers and buyers, investors, and the general state of the economy for several years. One of the far-reaching consequences of the ailing real estate market is negative equity, also called underwater or upside-down mortgages. This phenomenon occurs when a home owner owes the bank more for their house than the property is worth in the current market. A particularly frightening aspect of negative equity is that it is extremely difficult, sometimes impossible, to prevent. Even if an owner has made on-time payments, or paid ahead, plummeting home values can undermine responsible practices.

At the end of the first quarter of 2009, 14 million homeowners were suffering underwater mortgages. By early 2010, another 3 million are likely to join them. And by 2011 nearly half of all homeowners will be combating negative equity.

This isn’t just a crisis that affects individuals, either. Negative equity pushes up foreclosure numbers, which in turn endanger banks, and may drag housing prices down even further.