Fed Negative Equity Study

If home prices do not appreciate over the next few years, homeowners dealing with negative equity are likely to become renters, pushing down the U.S. homeownership rate to a level not seen since 2000, according to researchers at the New York Federal Reserve. "Negative equity households will very likely convert to renters when they move out of their current homes because they will be unable to save enough to cover negative equity, the transaction costs of selling their existing home and a downpayment on another home," three Fed researchers explain in their paper "The Homeownership Gap." The homeownership rate peaked at 69% in 2006 and has fallen to 67.2% by the end of 2009. If borrowers with negative equity are dropped from the homeownership calculation, the "effective" rate for the fourth quarter of 2009 would be 61.6%. In a separate report, mortgage analysts at Amherst Securities Group estimate that 250,000 homeowners a month are going delinquent for the first time. "These new delinquencies are primarily borrowers with negative equity: they are going delinquent for the first time at alarming rates," according to an Amherst Mortgage Insight article.