The value of a home is dependent on a number of factors. Homes in a good neighborhood or those with attractive landscaping or a well maintained backyard and pool, typically sell for good prices even if the housing market is subdued. There is another factor which indirectly influences the value of your home adversely – the state of mortgage balances of homes in your neighborhood. This factor, which is often ignored, can push down home values significantly.
The mortgage balance for a home is the amount of debt that the home owner still owes to the lender. Typically, the mortgage balance is lower than what can be recouped from the sale of the home, but in some exceptional circumstances, it can be even higher than the value of the house.
Sub prime mortgage lending supported soaring housing sales before the crash in the housing market. Many new owners opted for easily available mortgage loans at favorable adjustable rates. But once the prices started falling and the economy went into to a recession, these borrowers found themselves facing uncertain income, dropping returns from existing investments, and declining home values. Inevitably, many home owners ended up with a mortgage balance higher than the actual value of the home. As many as one third of home owners are still ‘underwater’, with huge mortgage balances.
How does it affect home value?
When a home owner is ‘underwater’, his finances are already stretched to the limit trying to keep his home from going into foreclosure by paying huge monthly mortgage repayments. He has no spare cash to spend on the maintenance or renovation of the home. He also lacks the motivation to keep his home looking attractive. When a neighborhood has many such ‘underwater’ homes showing signs of neglect, all the homes in the locality diminish in value.
Another impact of this situation is that if many home owners have been forced to foreclose and there are several empty homes in the area, then prospective buyers get the impression that there is no demand for homes there and this raises doubts in their mind. This again adversely affects the prices in that area.
So if you are putting your home up for sale or buying one, find out the mortgage situation in the neighborhood. A good real estate agent can also help you carry out this check and will help you in making a better pricing decision.
Speak Your Mind