Some are recent homebuyers, who bought a home in the last two years expecting to flip it in short order. Others are long-time homeowners who, in the words of one real estate expert used their home “like an ATM,” depleting its equity.
Whichever group they come from, recent statistics show homeowners across the Baltimore area are struggling with negative equity ? they owe more on their mortgage than their home is worth.
“The way in which people were financing in the last year and a half, they were taking out mortgages where they had basically no equity in it at all,” said Michael Anikeeff, chairman of Johns Hopkins University?s department of real estate. “If you paid no money down, and the price doesn?t go up, you would be under the water.”
Homeowners with negative equity make up 24.9 percent of all Baltimore-area buyers in 2007, according to data released earlier this month by online real estate data hub Zillow.com. But of those who bought a home five years ago, just 0.1 percent have negative equity, according to the report.
Of the latter group, many bought their home before the real estate market?s downside but fell into negative equity by using their homes “like an ATM” to finance other purchases, said Paul Cooper, vice president for real estate with Towson-based Alex Cooper Auctioneers.
In order to sell a home with negative equity, the seller must make up the difference between the mortgage and the sale price out of pocket.
“It?s not usually $5,000 that?s the problem, it?s $50,000,” Anikeeff said. “In a lot of these cases you went into it with no money down, so you don?t have a lot in your [bank] account.”
If a home with negative equity is foreclosed on, the owner is similarly responsible for paying the difference. But many lenders recognize that they?ll never see that money and write off the loss, Anikeeff said.
However that write-off constitutes a gift from the lender that the owner must pay taxes on. The federal government has begun looking at discontinuing that tax, Anikeeff said.
But when potential owners are just sitting on their depreciated home, waiting for the market to turn ? and contributing to slow sales, Cooper said. “I?ve said [to owners], ?if we?re $10,000 short of the mortgage price, can you pay it?, and they say, ?no, I can?t.? ”
