The amount of debt in America that is the hardest to get rid of is mortgage debt. The reason behind this is simple, people are starting to owe more on their home than its worth.
The Housing Debt Ratio in America is increasing due to fallen house prices which lowers the equity in homes.
This is happening because of the mortgage meltdown. Basically, if you own a home that is worth $200,000 and you owe $200,000 because you didn’t put any money down than you are okay. But when your neightbor to the left and to the right of you can no longer pay their mortgage payments because they signed an adjustable rate mortgage and the rate when up on them, they lose their home due to foreclosure in a matter of months since they can not longer make the payments on the home.
Well now the value of your neighbors home goes down and so the selling price of that home is drastically reduced by the bank that buys it back. So when you go to sell your home the comparisons show that the price of your neighbors homes sold for much less than what you are wanting to list your home for and so you decide not to sell.
This is called negative housing equity. Just like people are often upside down on their vehicles, meaning they owe more than the car is worth, the same is happening in the housing market, but not in all areas so don’t panic.
In some countries like the UK, the housing debt ratio is 1:6, being that one out of every six borrowers have a negative equity on their home due to the UK economy.
Many are still moving because of the great rates that can be found on mortgages but they are not selling their previous home. People are deciding to rent out their current home and moving into a new home. The idea is to sell their previous home when the market starts to turn around and the equity in their home increases. This can take years analyst say. As they say, don’t hold your breath.