Negative Equity Common Among Young Borrowers

Young people are more affected by negative equity than other age groups, Zillow’s Negative Equity Report highlighted, stating that 48 percent of all borrowers are under 40. Homeowners between 30 and 34 years of age account for more than 50 percent of those who are underwater, the report showed.

Negative equity occurs when the value of an asset used to secure a loan is less than the outstanding balance on the loan. And currently, close to 47 percent of those in the age group of 24-29 are underwater.

However, the numbers show a gradual decrease with age. In the 50-54 age bracket only 28 percent have negative equity, whereas it drops to 22 percent for homeowners in the 60-64 age groups.

Explaining why negative equity is more common among young borrowers, Boston.com reported that homeowners who bought their homes in the 1990s and 2000s escaped escalating prices, while those in their 30s now were more likely to have bought their homes at the peak of the housing bubble and now find themselves stuck.

“Still, it does make you wonder if the overconfidence of youth can play a part as well. Instead of balking at inflated prices back during the bubble, too many buyers went along, thinking they could make it work and confident that real estate values would just keep on inflating,” the report said.

On a national level, 30.9 percent of U.S. homeowners have underwater mortgages. This is down from 31.4 percent in the first quarter. And of all the largest metros tracked by Zillow, negative equity fell the most from the first to the second quarter in the Phoenix metro (from 55.5 percent to 51.6 percent) and the Miami-Ft. Lauderdale metro (from 46.4 percent to 43.7 percent).

"Rising home values in the second quarter caused a decline in the number of underwater borrowers, but young homeowners continue to be disproportionately affected by negative equity," Zillow Chief Economist Stan Humphries said in a statement.

 "Negative equity is trapping young people in their homes, preventing them from selling. These homes are likely the very starter homes potential first-time homebuyers are seeking."