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Spotlight on Research: The Distributional Impact of Negative Equity

Author

Listed:
  • Marvin M. Smith

Abstract

The fallout from the recent meltdown in the housing market continues to afflict many homeowners today. A great deal of attention has been focused on the debilitating effects of a rise in foreclosures and falling house prices that accompanied the market downturn. The depressing effect of foreclosures on house prices has presented several challenges to homeowners. Declining home values have resulted in a number of homeowners owing more on their mortgage than their home is worth. Thus, the homeowners are saddled with negative equity, which is commonly referred to as ?being under water.? Accordingly, negative equity might make it difficult for some homeowners to sell their house or lead to defaulting on their mortgage, resulting in foreclosure. Another consequence is that homeowners lose a valuable source of wealth ? equity in their house.

Suggested Citation

  • Marvin M. Smith, 2012. "Spotlight on Research: The Distributional Impact of Negative Equity," Cascade, Federal Reserve Bank of Philadelphia, vol. 2, April.
    • Handle: RePEc:fip:fedpca:0023
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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/community-development/articles/cascade/80/cascade_no-80.pdf
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