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Why is negative equity bad? (lemmy.nz)

submitted 1 month ago* (last edited 1 month ago) by [email protected] to c/nostupidquestions

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Sometimes drag buys a game on Steam at full price, and then a week later, the game goes on sale. Drag thinks "damn it, drag should have waited". But drag's never that upset, because drag wouldn't have bought the game if it weren't worth the price. Drag failed to save some money, but drag still values the game more than that money, so it's not a big issue.

The concept of negative equity was recently explained to drag, and it sounds like the housing equivalent of that. It happens when the price of housing crashes, but you already have an expensive mortgage out on the house. You still have to pay money worth more than the value of the house. Therefore, your equity, or equivalent share of ownership, is effectively less than zero.

The politician drag was talking to said negative equity is a big problem and it's why we can't just crash the housing market to solve all our cost of living problems. But drag doesn't understand. If you take out a mortgage, you should be able to afford it with your income, and the house should be worth more to you than its market value. Negative equity sounds like a huge bummer, but that politician was talking like it was something life ruining.

Why's negative equity so bad?

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[–] [email protected] 9 points 1 month ago (1 children)

It means that you can't move. There are many cases where people sell their houses, either out of want (they're moving somewhere else), or necessity (they can't afford the upkeep or really need the money right now, etc.)

If you take out a mortgage, you should be able to afford it with your income,

True. But income changes with time and it doesn't always go up.

Negative equity means someone who lost their job can't sell their house and get enough money to support them and get a smaller house. It's bad because real estate is supposed to be the most reliable investment: it's a plan B (and usually more of a plan C) and if that fails, people may have nothing left at all.

[–] [email protected] -4 points 1 month ago

Hmmm... Okay, well that does sound bad, but since it only hurts people who struggle with getting a job afterwards, but who were pretty well off to begin with, which isn't many people, it sounds like crashing the housing market is worth it. Needs of the many and all that.