when the opposite happens when current market value of a home falls bellows the amount the property owner owes on their mortgage that owner is then classified ashaving negative equity in the home the sale of a home with negative equity becomes a debt to the seller as they would be liable to their lending institution for the difference between the attached mortgage and the sale of the home 1
negative equity s economic implicationsnegative equity can occur when a homeowner purchases a house using amortgage before either a collapse of a housing bubble a recession or adepression anything that causes real estate values to fall for instance say a buyer financed the purchase a 400 000 home with a mortgage of 350 000 if the market value of that home the next year tumbles to 275 000 the owner has negative equity in the home because the mortgage attached to the property is 75 000 greater than what it would sell for in the current market 2in real estate jargon if the outstanding dollar amount remaining on mortgage is larger than what the home is worth the property the mortgage and the homeowner are said to be underwater 3underwater mortgages were a common problem among homeowners around the height of the financial crisis of 2007 2008 which among other things involved a substantial deflation in housing prices as the subsequent onset of the great recession proved the widespread epidemic of negative equity across the housing market can have far reaching implications for the economy as a whole homeowners with negative equity found it more difficult to actively pursue work in other areas or states due to the potential losses incurred from the sale of their homes special considerationsnegative equity is not to be confused with mortgage equity withdrawal mew is the removal of equity from the value of a home through the use of a loan against the market value of the property a mortgage equity withdrawal reduces the real value of a property by the number of new liabilities against it but it doesn t mean the owner has gone into the red equity wise 