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IPFS News Link • Economy - Economics USA

An Alarming Forecast For The Housing Bust

• DailyKos.com
Homeowners who have suffered a 20 percent or greater fall in house prices are about fourteen times more likely to default on a mortgage compared to homeowners who have enjoyed a 20 percent increase.

1 Comments in Response to

Comment by Brock Lorber
Entered on:
...implying a causal relationship which does not exist. Neg equity does not cause defaults.

If a homeowner has a significant life change or change in payments, that owner may look to re-fi or sell. It is true that the opportunities to do so for homeowners in a negative equity situation are limited, but, again, the negative equity doesn't cause the default, it's the life or payment change.

If neg equity were causing defaults, rents in the very areas with the greatest neg equity would be skyrocketing or homes would be selling as quickly as they are being foreclosed upon. In the latter case, the defaulting homeowners would be exhibiting a heretofore unrecognized savvy in purposefully trading their neg equity home for a new (to them) home and mortgage with sufficient equity to meet recent stringent lending rules.

Not very likely.



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