Posted by Linda Landry on August 2, 2009 at 8:19am
What is the difference between underwater and upside down? Both are negative equity right? Technically, I guess the answer is yes and no. Underwater is the current term for homeowners (better known as a mortgagor) who owe more for the loan than the value of the property. Upside Down is the term commonly used when a vehicle has less value than the loan intact.Being upside down in a vehicle loan has been common place for years and no one seems to scream 'help I'm upside down and I can't get out'. Of late many mortgagor's have become underwater in their loans as property values plummet and they cry out 'no help then I'll abandon ship!' Countless have abandoned their property and shirked their commitment/responsibility. Certainly, there are those who had no choice due to unforeseen circumstances such as job loss/transfer or medical bills/death in the family. However, countless just bailed.We are accoustomed to a vehicle depreciating in value the moment we drive it off the lot. Seems like a fact of life we've accepted. Especially regarding new vehicles. It is the price we are apparently willing to pay for the new car smell and the warranty of a mechanically trouble free few years. We suck it up and we pay up. Typically real estate property appreciates. This is a factor least considered when choosing property as there are more emotional factors to consider. Similar to marriage we dream of rearing children, raising pets, entertaining guests and family and watching grandchildren romp in the yard. In other words the plan is to stay, seemingly, forever. The norm has been for property values to increase and for folks to rest assured that when the time came in three, five, or even twenty years their investment would be recouped....and then some.What a shock to realize in this current market that is not the case. Even for those who remain and maintain their property. There property is 'devalued' due to the appraisals of comparables often abandoned and in disrepair. Their equity dissipated into thin air and often went into the negative. The philosophical difference was lack of preparedness due to the concept of the investment. More mortgagors than not expected their investment to appreciate. Typical vehicle purchasers are conditioned to know their investment will depreciate. With a vehicle there is the belief that there is NO equity; an accepted fact.Perhaps we should consider our residential purchases with more of a matter of fact approach. Perhaps looking at a residential property for the purpose it serves and for how it's financial responsibility fits in our budget are better ways to evaluate the expenditure. Additionally, consideration for re-sale value needs to be foremost in our minds when choosing a property or financing. There is always the possibility to necessitate leaving earlier than expected. We can learn from the current economic crisis and do what is possible to allow a palatable exit.Negative equity exists; even in property. We've all had the privilege to see it first hand. Let us learn from all the mistakes and minimize the pain for our future.
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