From Underwater to ‘Equity Poor’: Why the Housing Market Isn’t Recovering Faster

We've spoken to a few readers that are greatly affected by the "equity poor" scenario laid out in this Time article.  It is a bit of being in "no man's land" where you have a situation in which case you are not underwater with your mortgage (meaning you owe more than the house is worth) vs. having little to no equity and not being able to refinance or trade up in value.

As the article points out it is this segment of "trade up" buyers that help to fuel the real estate market by selling their smaller starter house for a bigger more expensive house.

A few highlights from the piece

• Unlike underwater borrowers — who have negative equity, with more debt on their homes than those homes are worth — equity-poor borrowers have less than 20% equity in their homes. Why 20%? In the current tight lending climate, buyers generally need to put 20% down on a home in order to get a mortgage. So if you’re currently in a $400,000 home, even if you have 20% equity, you can’t trade up to buying a $600,000 home solely on the basis of the money you would extract if you sold.
• So what should you do if you’re equity poor? First, be happy you’re not underwater. Next, probably the most prudent course is to do what the majority of Americans are doing: not much of anything. Sit tight, try to be patient — and take advantage of today’s low mortgage rates with a refinancing, if you possibly can.

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