negative equity, locking in the losses

QueVivaPSV

Banned
Dutch
Can somebody explain me this phrase:
Price rises largely reflect the acute shortage of available properties, with many homeowners either trapped in negative equity or reluctant to sell for fear of locking in the losses of the past two years.

Especially 'trapped in negative equity' and 'locking in the losses'.

Thank you.
 
  • cuchuflete

    Senior Member
    EEUU-inglés
    Negative equity: The current market value of a home has dropped, such that the equity ownership of the mortgage holder is less than what they had when they purchased the home.

    Example:

    Purchase of home @ $500,000, with down payment of $50,000, and a 30 year mortgage for the remaining $450,000. Purchase was about 5 years ago.

    Five years of mortgage payments have given the owner an equity position of about $80,000, and an outstanding mortgage balance of $420,000 to be repaid.

    The current market value of the home, if one can find a buyer, is $350,000. This is less than the outstanding debt. The result is a negative equity position. If the owner sells the house, they will still owe $70,000 in principal for the mortage, and will lose the $80,000 in equity they have today.


    Locking in losses simply means that a sale at today's price will result in a loss. Waiting for a recovery in the market may reduce or eliminate the loss. A transaction today will
    finalize it, or lock it in.
     
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