Millions of homes are “underwater” or “upside down”, meaning the debt is higher than the value of the property.
I am often asked variations of the question “When will home values rise back to equal what is owed?”
I never want to sound negative, but the answer is measured in years.
Here’s a simple math problem to make the point
If you have $100.00 and you lose 50% of it, you now have $50.00 left.
If your new balance of $50.00 now goes back up by 50% (fifty percent), it is only worth $75.00.
Because 50% of $100.00 on the way down is $50.00. But 50% of the remaining $50.00 on the way up is only $25.00.
So, if the value goes DOWN 50%, it has to GO UP 100% to equal what is was.
Another way to put it is: If the value of something is slashed in half (by 50%), it then has to DOUBLE (go up by 100%) to equal its original value.
Now back to real estate values
If your house value declined 30% in the last number of years, it has to go up much more than 30% to equal what is was worth. A $400,000 house that went down in value 30% is worth $280,000. If $280,000 goes up by 30% it's still only worth $364,000, which is $36,000 short of the original $400,000.
If your house value went down 30% and the market STARTS appreciating 5% per year, how many years will it take to climb up to the original 100% of value? Keep in mind there is some compound appreciation factors which shortens a recovery, but still, the answer is many years.
And the recovery hasn't started yet.
We need to remember that as of today's writing in May 2011 the market hasn’t even bottomed out yet, and has not yet started the theoretical 5% annual appreciation climb.
If your loan balance was close to market value five years ago, chances are you are underwater today.
So what to do if you need to sell now? A Short Sale is a viable option.
Since life goes on, there are many natural reasons for people to move or sell. Typical reasons are
- Job relocation
- Job loss
- Illness or injury
- Distance to work and schools with high gas prices
In an underwater situation, the sellers may become candidates for a short sale in order to avoid foreclosure. If you need to sell your underwater house in Louisville, KY or surrounding counties, please call me at (502) 664-7827. Most importantly, I will listen to you and learn the particulars of your situation. We will then discuss a strategy to best help you.