The Housing Market Scare

Home prices are still falling. A new report on home prices, that just came out this week, indicates that the more those prices fall, the more American home owners fall into negative equity. It means that those home owners are unable to sell their property for enough to pay their real estate agent and put a down payment on a new property without digging into their savings.

Home foreclosures is a big problem, but the declining home values and negative equity is becoming a much bigger problem in the housing market. According to Zillow, in the third quarter of 2011, 28.6% of U.S. homeowners owe more on their mortgages than their houses are worth. This percentage represents about 14.6 million borrowers.

The declining home value problem is even worse in some of the areas of the U.S. 24/7 Wall St. identified areas, previously booming housing markets, with the most underwater mortgages. These areas include California, Florida and the Southwest. The high market supply might be a contributing factor to the sinking home values. For example, home prices in Las Vegas dropped by almost 60% from pre-recession values. The prices are still dropping.

In order for housing market to recover, the market should have activity. However, falling prices and negative equity cause stagnation. In the end, this stagnation deepens the housing market problem, making it worse.