A top housing market economist told Reuters that millions of homeowners may soon walk away from their homes as floundering property values force more Americans to cut their losses.
“We may face something unprecedented … that is a situation where millions of homeowners are going to walk out of their homes in the next couple of years,” said Nouriel Roubini, professor of economics and international business at New York University’s Stern School of Business.
Roubini added that between 10 and 15 million homeowners may find themselves with negative equity, where the total mortgage balance exceeds the value of the home.
“When the value of your home is below the value of your mortgage you have a huge incentive essentially to walk away,” he told Reuters.
Last week, Zillow reported that 39 percent of those who purchased a home in 2006 and 30 percent who bought in 2007 have negative equity, thanks in part to small or non-existent down payments and falling home prices.
Those numbers are up markedly from its third quarter report which revealed that 15.6 percent of homeowners who purchased a home in the last year had negative equity.
Roubini also predicted that home values will fall another 10 percent this year, on top of losses already recorded in 2007, further straining mortgage lenders and servicers who must decide whether to write off the losses or force borrowers into foreclosure.
It’s unclear how many of those set to walk away were prospectors and how many were just ordinary families who bought at the wrong time.