A widely repeated statistic on underwater homes could use a cold shower.
Several research companies track the troubling spread of negative equity—where the value of a home falls below the debt owed—as real-estate prices have tanked. And the number of such homes has risen from almost nothing during the housing market's peaks in the middle of last decade to nearly one in four U.S. homes with mortgages today.
The statistic has been wielded by the media and public officials to paint a troubling portrait of homeowners trapped by crippling debt, unable to tap their homes for credit or to sell and move for jobs elsewhere.
But in a rare instance of mild good news in the housing market, the 1-in-4 figure, and the fear it provokes, seem overblown. It is calculated using assumptions in ways that inflate the number of underwater homes. And more than half of these homes are underwater by a small margin, meaning that for various reasons those homes are unlikely to trigger an epidemic of defaults.
"Everyone likes to get headlines, so they tend to overstate problems like this, without doing ground-level research," says Kenneth Rosen, chair of the University of California, Berkeley, Fisher Center for Real Estate & Urban Economics. "We probably overstate the number of people who are in trouble by quite a bit."
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