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Are Younger Underwater Homeowners More Responsible Borrowers?

young

Zillow released the second edition of its new Zillow Negative Equity Report today, revealing some interesting statistics about age and underwater borrowers.

The company noted that the youngest underwater borrowers, those aged between 20-24, were the least likely to be delinquent on their mortgages.

Just 5.9% of underwater borrowers in this age bracket were 90 days or more behind on the mortgage, versus 9.2% of all other underwater homeowners.

Of course, Zillow didn’t have an explanation as to why younger homeowners are better at staying current.

If I had to take a stab at it, I would think it has to do partially with the fact that these younger homeowners have only been in their properties for a few years at best, so they just haven’t had the time to give up.

And maybe they’re just more optimistic than the older generations, who have watched much of their home equity get zapped in recent years. They’ve also got more time on their hands to ride things out.

They may also not be as savvy about strategic default, or in exploding option arms and other high-risk loan programs that would make payments unmanageable after a few years.

Or it could just be that young people are more responsible than we give them credit for…either way, they’ll pave the way for the future of the housing market, so it’s important to keep an eye on what they’re up to.

Younger Homeowners More Likely to be Underwater

negative equity by age

Delinquency rates aside, younger homeowners are the most likely to be upside down on their mortgages.

Nearly half (48%) of all borrowers under the age of 40 were underwater in the second quarter, which is certainly a startling statistic.

Those suffering the most are aged between 30-34, most of which were probably first-time homebuyers who scooped up houses near the top of the housing bubble right before they eventually nosedived.

Sadly, many of these 30-something borrowers are trapped in their homes thanks to a lack of home equity, preventing other young buyers from finding suitable properties for themselves.

This explains the inventory issues seen at the moment, with very few viable options for those looking to buy in popular regions of the country.

As the homeowner ages, the negative equity rate drops pretty steadily because many of these older borrowers probably paid their mortgages down considerably over the past couple decades.

[Should I pay my mortgage down early?]

The older ones that got “burned” likely pulled cash out of their homes as prices marched higher and higher.

Negative Equity Keeps Dropping

The good news is negative equity levels continue to fall as home prices stabilize and even rise in some areas.

A total of 15.3 million homeowners were underwater in the second quarter, down from 15.7 million a quarter earlier.

That amounts of 30.9% of U.S. homeowners, down from 31.4%. In dollars, the total amount of negative equity fell $42 billion to $1.15 trillion.

So there’s definitely more work to be done, but at least it’s moving in the right direction.

Negative equity fell the most in the Phoenix metro, from 55.5% to 51.6%, thanks to a major reversal in home prices in the desert.

The hard-hit Miami-Ft. Lauderdale metro also saw a nice improvement, with negative equity dipping to 43.7% from 46.4%.

Las Vegas is still the hardest hit, with 68.5% of homeowners underwater, though it was a staggering 71% in the first quarter.

Every single metro tracked by Zillow saw their negative equity levels drop except for Philadelphia, where it increased from 25% to 25.4%.

This further supports the fact that the recovery won’t be the same across the nation.

Yes, the trend is improving overall, but you really need to focus on your own region if you want to know which way things are going.

For the record, Zillow’s report only looks at owner-occupied homes – investment properties probably exhibit even higher levels of negative equity thanks to the many speculators present before and during the housing bubble.

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