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Is Home Equity Really A Factor When It Comes to the Housing Crash?

Posted by Sami Thalji | Oct 29, 2021

As previously discussed on this page, the conventional wisdom that homeowner's with equity should be able to avoid foreclosure doesn't seem realistic considering everything we know about banks and money lenders. Recently the National Mortgage News ran an article discussing this exact issue and basically said that equity might not be enough since approximately 20% of homeowners in forbearance have under 10% equity. Unfortunately, 10% equity isn't much equity at all if you're going to sell, since closing costs will eat into most of that. The article also went on to predict that foreclosures would be closer to the 2018-19 levels as opposed to 2008-09. While I don't disagree with that, I do think there is one factor that will weigh heavily on how the market turns out. IN my opinion, home inventory is the biggest factor at play, So long as inventory is suppressed prices will stay high and equity will remain giving homeowners the option of selling their home to avoid foreclosure. However, once foreclosures start and inventories slowly creep up I think the inventory market will gain momentum and with that momentum prices will fall and a new cycle will begin. The other factor I think matters is the way the average consumer and homeowner views their home equity. In our vast experience representing homeowners, there are two types of people when it comes to equity.  The first type periodically refinances their home to pay off debts and pay for renovations. The second type doesn't consider their equity real and it almost never factors in their decision. These people value the home over the equity and only think of it in terms of potentially having a retirement next egg when they are in their 70s. Unfortunately, these are the people that will get squeezed in foreclosure because they will be very slow to make the decision to sell their home and once they do it will likely be out of desperation, which means they may not have equity left by the time they sell. As always, when it comes to the current housing cycle, the future is uncertain but the end is always near.

About the Author

Sami Thalji

Sami Thalji is a native Floridian, born in Clearwater and raised in St. Petersburg, Florida. Sami graduated from Osceola High School in Seminole, Florida before attending and receiving both his Bachelor of Science and Juris Doctor from the University of Florida in Ga...


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