U.S. Market Sees Negative Equity and Mortgage Default Rise Hand in Hand

Loan to value
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Twenty-four per cent of all U.S. mortgagors owed more than their home was worth as of the end of the last quarter, in comparison to Canada’s mere one per cent.

Trends illustrate that as U.S. homeowners amass increased negative equity, or the amount owed on their home continues to exceed the actual market value of the property, so to does their tendency to default on their mortgage.

When loan-to-value ratios surpass 120 per cent, or the property is worth 20 per cent less than the loan being paid on it, pre-foreclosure rates tend to spike up to roughly 10 per cent on both investor and owner occupied properties. Property owners in this scenario often give up on the property.

Historically Canadians are more conservative buyers, borrowers and credit users than their southern neighbors. Still, we can learn from this situation to think twice before buying when real estate values are largely out of sync with reality. Also, to better know what one can afford, a potential home-buyer should make use of a mortgage calculator.

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