Up to one in ten property owners in the US ready to walk away from negative equity, says survey
Almost one in ten property owners in the US are prepared to walk away from their homes if the felt that negative equity would put them in a vulnerable position, according to a new survey.
Some 7.4 million, that is 9,2% of property owners nationwide, would default on their mortgages and suffer the consequences, the research from Reecon Advisors, publisher of Real Estate Economy Watch.
It is the most dramatic evidence to date of the phenomenon called strategic defaults, where homeowners choose to default and suffer foreclosure rather than continuing to make monthly payments on a mortgage that is greater than the value of their homes.
It will also add to concerns that a wave of foreclosures could swamp the US real estate market next year bringing an end to what many describe as a fragile recovery in property sales and prices.
The New Year is always a danger point for defaults as people spend too much over the festive season.
The survey results also come at a time when the proportion of home owners who owe more on their mortgages than their properties are worth has increased.
Nearly 10.7 million households had negative equity in their properties in the third quarter of the year n according to figures from real estate information company First American CoreLogic.
The majority of property owners would choose options other than strategic default and said they would talk to their lenders about modifying their loans while 44.3% said they would try to sell at the best price possible with 25% considering renting out a room to help pay their mortgage.
However, some 19.2% said that it is not very or not at all likely that they would continue to pay the mortgage.
A recent study from the graduate schools of business at the University of Chicago's Booth School of Business and Northwestern University found that one out of four homeowners who default on their mortgages make a strategic decision to clear out their belongings and walk away from their homes even if they can afford to pay their mortgages.
It found that people rarely default if the negative equity in their home is 10% or less but once it reaches 15% the tendency to walk away increases significantly.
Nearly one in five individuals would strategically default if their house were worth 50% less than their mortgage balance.